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Question 1: (40 points) Andy gets utility from playing bowling and listening to audiobooks. Each week, Andy spends his entire $100 paycheck on both goods.
Question 1: (40 points) Andy gets utility from playing bowling and listening to audiobooks. Each week, Andy spends his entire $100 paycheck on both goods. One hour of bowling costs $20, an audiobook costs $10. a) Graph Andy's budget constraint. Put the number of audiobooks on the horizontal axis and hours of bowling on the vertical axis. b) When Andy maximizes his utility, he buys 6 audiobooks. Carefully add an indifference curve to your graph to reflect Andre's utility-maximizing bundle of audiobooks and bowling. c) When Andy maximizes his utility, how many hours of bowling does he play? d) When Andy maximizes his utility, the marginal utility he receives from playing an extra hour of bowling is 12 utils. How much utility must Andy get from listening to another audiobook? Question 2: (30 points) Christine spends her income on fishing lures (L) and guitar picks (G). Lures are priced at 52, while a package of guitar picks costs $1. Assume that Christine has $30 to spend and her utility function can be represented as U(L, G) = L036\". For this utility function, MUL = 0.3L'0'7Go'7 and MUg = 0.7L0'3G'0'3. a) What is the optimal number of lures and guitar picks for Christine to purchase? How much utility does this combination give her? b) Ifthe price of guitar picks doubles to 52, how much income must Christine make to maintain the same level of utility? Question 3: (30 points) Which assumption about consumer preferences does each of the following individuals violate? a) John likes tennis more than racquet ball; racquetball more than basketball; and basketball more than tennis. b) Tom prefers Nevada to Idaho but can't decide how he feels about Oregon. c) David likes fried chicken but prefers 3 pieces to 5 pieces
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