Question 1: 9 Marks

Ashwin likes to spend her spare time in summer in one of two ways:

(i) watching cricket (x) at Sydney Cricket Ground or

(ii) watching movies (y) at Ritz cinema.

In choosing how to entertain herself, she considers both constraints---money and time.

Part I (3 marks)

Ashwin has 48 hours of spare time in a month. A cricket game runs for 8 hours, while each visit to the movies takes up 4 hours. Each month, Ashwin also has $324 to spend on entertainment. A ticket for a cricket game costs $45. A visit to the movie costs $36.

(a) (1 mark) Write down Ashwin's budget constraint and time constraint.

(b) (2 marks)Draw Ashwin's budget constraint and time constraint in a clearly labelled diagram. Label all axis intercepts in the two axes (x and y) and the point of intersection of the two budget lines. Shade the set of bundles that Ashwin can afford (those satisfying both his time and money constraints) with vertical lines.

Part II (3 marks)

Sam---a friend of Ashwin---has the same amount of spare time (48 hours per month) and same amount of money to spend on entertainment ($324 per month). He faces the same constraints as Ashwin. However, Ashwin and Sam have slightly different preferences over cricket (x) and movies (y).

• Sam's utility function: U(x,y) = x + y
• Ashwin's utility function: V(x,y) = min{x,y}

Each maximizes their own utility.

1. What is/are the utility maximizing bundle/s for Sam?
2. What is/are the utility maximizing bundles for Ashwin?

Part III (3 marks)

To attract cricket fans back after Covid as well as to cover revenue shortfall, the local cricket association has decided to offer a season ticket for $144. Tickets are now NO LONGER sold separately for each game (i.e., the season ticket is the only option if one wants to watch cricket at SCG). With the season ticket Ashwin can watch as many cricket games as he wants.

(c) (1 mark) Draw Ashwin's new budget constraint for money, and shade in his new affordable set of bundles with horizontal lines.