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Jim has to do this week's grocery shopping. He has a budget of $200 that he can allocate on meat and yams. Meat costs $4
Jim has to do this week's grocery shopping. He has a budget of $200 that he can allocate on meat and yams. Meat costs $4 per pound and yams cost $2 per pound. For your answers below, use the horizontal axis to indicate the pounds of yams and the vertical axis to indicate the pounds of meat. (a) Draw Jim's budget constraint. (b) AssumingthathisutilityfunctionisoftheformU(M,Y)=2M+Y,whereMdenotesthe pounds of meat and Y denotes the pounds of yams, what is the optimal combination of meat and yams for Jim? (c) His neighborhood supermarket is running a promotion this week. If he buys 20 pounds of yams at $2 per pound he gets 10 pounds for freethe offer is valid only for the first 20 pounds. Draw his budget line. (d) Assume now that the price of yams is $4 per pound and there is no promotion in place. Draw Jim's new budget line and indicate the combination of meat and yams that maximizes his utility
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