Question

Evelyn eats only apples and bananas. Suppose Evelyn has the following utility function: ?(??, ??) =...

Evelyn eats only apples and bananas. Suppose Evelyn has the following utility function: ?(??, ??) = ????.

a. Evelyn currently has 40 apples and 5 bananas. What is Evelyn’s utility at this bundle? Graph the indifference curve showing all bundles that Evelyn likes exactly as well as the bundle (40, 5).

b. Norah offers to trade Evelyn 15 bananas if she will give her 25 apples. Would Evelyn take this trade? Explain.

c. What is the largest number of apples that Norah could demand from Evelyn in return for 15 bananas if she expects her to be willing to trade or at least be indifferent about trading?

3. Continuing with Evelyn from question 2. Suppose the price of apples is $1, the price of bananas is $2, and her income is $24. a. Graph her budget line and shade in all the bundles that she can afford (in blue ink) b. Given her utility function form question 2, calculate the bundle that will get Evelyn to the best possible indifference curve given her budget constraint. c. Draw this indifference curve (in black or red ink) and indicate her optimal bundle on your graph from part a.

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