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1. Isaac and Imad have decided to learn to snowboard at Elk Mountain, PA. First, they must rent snowboards from the local ski and snowboard
1. Isaac and Imad have decided to learn to snowboard at Elk Mountain, PA. First, they must rent snowboards from the local ski and snowboard shop, which offers the following pricing structure: The first two days of rental cost $10 per day; the next three days of rental cost $20 per day; additional days of rental beyond five are $30 per day. a) If both Isaac and Imad have the same income of M=140, draw their individual budget constraint with the composite good (Y) on the vertical axis and days of snowboard rental (S) on the horizontal axis. Be sure to label enough points to fully characterize the shape of the budget constraint. b) Isaac views 28 units of the composite good as a perfect substitute for one day of snowboard rental, while Imad views 32 units of the composite good as a perfect substitute for one day of snowboard rental. How many units of Y and S will both Isaac and Imad consume? Why? What is the marginal rate of substitution for both Isaac and Imad at their optimal bundle? c) Suppose that the local ski and snowboard shop decides to change its pricing structure so that additional days of snowboard rental beyond five now cost $35 per day. How many units of Y and S will both Isaac and Imad consume under the new pricing structure? Why? Are Isaac and Imad better off, worse off, or equally well off under the new pricing structure? How do you know
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