Question 1

Jane allocates a budget of $120 a week to purchase either fruits or vegetables. When she eats no vegetables, she consumes 60 cups of fruits. When she eats no fruits, she consumes 40 units of vegetables. Assume that price per cup of fruit is $2 and price per unit of vegetable is $3. Jane reports that she consumed 30 units of vegetables and 20 cups of fruits last week. When she made her consumption choice last week, her marginal rate of substitution of vegetables for fruits was ?2/3

a) Draw the budget line and illustrate where Jane’s indifference curve intersects the budget line.

b) Do you find a corner solution in Jane’s case? Explain why or why not.