John lives in Oslo and therefore only eats cod (good 1) and salmon (good 2). He has a budget of USD 3,600 per month. A cod meal has a price of USD 100. A salmon meal has a price of USD 150.

a) Set up the budget condition and draw it in a good diagram (x1, x2). Explain what

the budget condition means.

b) A colleague predicts that John will buy 10 cod meals and 10 salmon meals per

month. What's wrong with this prediction? Which requirement for the utility function does the prediction violate?

A lengthy statistical study shows that John's preferences can be described with the following utility function:

= (1, 2) = 1^0.3 2^0.6

c) How many cod meals and salmon meals will John buy?

d) Calculate the numerical value for Johns marginal substitution fraction

from problem c). Explain in words what it means for MSF to have this value.

e) An economist says that all consumers in this market have the same numerical value for MSF as John. Can this be true?

John's twin brother has the same preferences and budget as John, but he lives in Paris.

Transporting fish to Paris is not free. The prices in Paris are therefore USD 50 higher than in Oslo for both types of fish meal.

f) What can we say about the twin brother's fish consumption without making any calculations?

g) How many cod meals and salmon meals will the twin brother buy?

Another Oslo resident has the same budget as John, but has the following utility function:

= (1, 2) = 0.3 ln(1) + 0.6 ln (2)

h) How many cod meals and salmon meals will he buy?