#IntermediateMicro 5.1 (0) We begin again with Charlie the apples and bananas. Recall that Charlie's utility fund is U (XA, XB) = XAXB. Suppose that the price of apple 1, the price of bananas is 2, and Charlie's income is 40. On the graph below, use blue ink to draw Charlie's budg line. (Use a ruler and try to make this line accurate. ) Plo few points on the in difference curve that gives Charlie utility of 150 and sketch this curve with red ink. Now pl few points on the indifference curve that gives Charlie & utility of 300 and sketch this curve with black ink or per Bananas 0 10 20 30 40 Apples (b) Can Charlie afford an bundles that give him a utility of 150? (c) Can Charlie a any bundles that give him a utility of 300? (d) On your mark a point that Charlie can afford and that gives him higher utility than 150. Label that point A. (e) Neither o indifference curves that you drew is tangent to Charlie's budget line. Let's try to find one that is. At any point, (7 Xa), Charlie's marginal rate of substitution is a function and Xe. In fact, if you calculate the ratio of marginal uti for Charlie's utility function, you will find that Charlie' marginal rate of substitution is MRS XA, XB) = - Xa/X. This is the slope of his indifference curve at (XA, X8)