Question
Hans is going on holiday to Austria () and / or Italy (I). He has no more than 10 vacation days for it. The table
Hans is going on holiday to Austria () and / or Italy (I). He has no more than 10 vacation days for it. The table below shows both different combinations of holidays in the two countries, and Hans's corresponding marginal utility per holiday in Austria and Italy for each combination. The price per holiday in Austria is NOK 2,000, while the price for one holiday in Italy is NOK 4,000. Choose the best option and justify your answer.
Alternativ | Austria | italia | Marginalutility Austria () | marginal utility Italy |
A | 0 | 10 | 200 | 0 |
B | 3 | 7 | 98 | 84 |
C | 5 | 5 | 50 | 100 |
D | 7 | 3 | 12 | 84 |
E | 10 | 0 | 0 | 0 |
b) One year later, Hans will show his (exclusive) favorite places in Austria and / or Italy to his new girlfriend, Hanna. During the planning, the couple agrees that their useful function in relation to the holiday trip can be described with U = 2 * * I2, where is the number of holiday days in Austria and I number of holiday days in Italy. The couple has a total budget BHolidays of NOK 81000 for the holiday trip. The price per holiday in Austria is NOK 4,500 for the couple, while the price for one holiday in Italy is NOK 6000 for the couple. How many holidays do the couple spend in each of the countries, if they want to enjoy the holidays to the maximum? Justify your answer with specific calculations.c) Use the couple's utility function, budget and prices from task b. Draw up the couple's decision problem, as well as the optimal solution and corresponding utility level. Explain a) (in general) why an optimal utility level can be shown by a curve that touches the budget constraint, and b) (specifically) why a utility level of U = 640 is not optimal for the couple from task part b). D) Are the holidays in Austria and the holidays in Italy from task part b) perfectly complementary, perfect substitutes, or another type of good? Explain briefly using the marginal substitution rate (MRS).
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