Question

Suzie, a former actress, spends all her income doing the two things she loves: attending plays and going to movies. Plays and movies are perfect substitutes for Suzie and she likes plays exactly twice as much as she likes movies.

a. (Use one color) Carefully draw her indifference map (at least two indifference curves) with plays on the vertical axis and movies on the horizontal axis). Label them such that U2>U1. You can use increments of 2 on the axes.

b. (Use a different color) Suzie earns $200 per month. If play tickets cost $25 and movie tickets cost $10 each, draw and label her budget constraint.

c. Label Suzie’s utility maximizing choice point “M” and fill in the blanks: To maximize utility, Suzie should attend __________ movies and __________ plays each month.

d. At point M, MRS M,P _____ PM/PP. Fill in the blank with: “>” or “=” or “<”

Answer 1