1A.4 Assume that Ariel is a rational consumer who consumes only two goods—oats (O) and bananas (B). Assume that her marginal rate of substitution of bananas for oats is given by the following formula: MRS = MUB>MUO = O>B That is, Ariel’s MRS is equal to the ratio of the amount of oats consumed to the number of bananas consumed.

a. Assume that Ariel’s income is £200, the price of a box of oats is £20, and the price of a dozen bananas is £10. What quantities of oats and bananas will she consume?

b. Find two additional points on her demand curve for bananas (PB = £20 and PB = £4).

c. Sketch one of the equilibrium points on an indifference curve graph.

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Units of Y 0 X 0 X 0 70 200 280 340 400 600 Units of X