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Question 18 (20 points) 10 11 12 Lynda loves buying shoes and going out to dance. Her utility function is U = 2SD where S
Question 18 (20 points) 10 11 12 Lynda loves buying shoes and going out to dance. Her utility function is U = 2SD where S is the number of pairs of shoes she owns and D is the number of times she goes dancing per month. 13 14 15 The marginal utility of dancing = 2S The marginal utility of shoes = 2D.A 16 17 18 Answer the following questions: a. It costs Lynda $50 to buy a pair of shoes and $50 to go out dancing or an evening. 19 20 21 Lynda has $500 per month to spend on shoes and dancing. Write down the equation for Lynda's budget constraint. Draw the budget constraint with D on the vertical axis. Label the intercepts and the slope. 22 23 24 b. What is the relationship between shoes and dancing for Lynda? Explain briefly. c. What is Lynda's Marginal Rate of substitution? Explain in words what her MRS 25 means. By this I mean that you must explain what Lynda's particular MRS depends on and why it makes sense. A generic explanation of MRS will earn little credit. d. What is Lynda's optimal consumption bundle? Solve for it mathematically
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