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these pro these questions ahead of the exam. (Reviewing homeworks will 1. Suppose that Bud has many friends and relatives across the country with whom

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these pro these questions ahead of the exam. (Reviewing homeworks will 1. Suppose that Bud has many friends and relatives across the country with whom he likes to keep in touch. There are two ways of doing so, telephone calls and letters. Suppose that a 3- minute call costs $2(and they are always in increments of 3 minutes) and a letter costs $0.25. He has decided ahead of time to allocate just $100 per year to keeping in touch with friends and relatives. Now, suppose the phone company institutes a new plan. It has a purchase requirement. That is, an individual can obtain $100 worth of phone calls by paying the phone company $50 in postage stamps. (This plan can only be purchased once.) a. Depict Bud's budget constraints both before and after the new plan. b. Draw up some indifference curves that illustrate each of the following utility maximizing responses to the implementation of the new plan. (1) Vincent is obsessed with a starlet and writes her only letters before and after the new plan. (2) Foday who considers 6 letters equivalent to one phone call (in that constant ratio) writes only letters before the new plan but writes half as many after the new plan. (3) Iana writes the same number of letters but makes twice as many phone calls after the new plan. 2. Ivan's company determines that at current prices the demand for its computer chips has a price elasticity of (-2) in the short run, while the price elasticity for its flash drives is (-1). a. If his company decides to raise the price of both products by 10 percent what will happen to its sales? To its sales revenue? b. Can you tell from the available information which product will generate the most revenue for the firm? If yes, why? If not, what additional information would you need? ods the

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