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Suppose that Ms Lingle spends her monthly budget of $600 on beers (B) and donuts (D)
Suppose that Ms Lingle spends her monthly budget of $600 on beers (B) and donuts (D). Her budget constraint is depicted below. Lingle's monthly budget constraint 40-A Number of beers per month 30 Number of donuts per month a) (3 points) Calculate the price of a beer (Pa) and a donut (P.). b) (2 points) Write down the equation defining Ms. Lingle's budget constraint. c) (2 points) Which of the five points marked on the graph would Ms. Lingle not be able to afford? d) (3 points) Suppose that Ms. Lingle maximizes her utility by purchasing bundle B. Calculate the slope of the indifference curve passing through point B. e) (4 points) If, by purchasing bundle B, the marginal utility of the last unit of donuts she purchases is 40, what will be the marginal utility of the last unit of beer she purchases?
Expert Solution
a) PD = 600/30 = 20
PB = 600/40= 15
b) equation : 20D + 15B = 600
c) point D is not affordable, bcoz it lies outside Budget Constraint
d) at eqm, slope of IC= slope of Budget Constraint
= PD/PB
= 20/15
= 4/3
e) at eqm, MUD/MUB = PD/PB
40/MUB = 4/3
MUB = 40*3/4 = 30
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