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1. Sarah enjoys watching films at home (F) and going to the cinema (C). Her utility...

1. Sarah enjoys watching films at home (F) and going to the cinema (C). Her utility function is U = FC. Each film costs £2 to download while each cinema ticket costs £8, and Sarah has £80 to spend each month on these two goods.

  1. Does Sarah's utility function satisfy the assumption that more is preferred to less? Explain.
  2. Write the expression for Sarah's budget constraint. Graph the budget constraint and determine its slope.
  3. Suppose Sarah is currently downloading 28 films and buying 3 cinema tickets each month, so that the marginal utilities of F and C are: MUF = 3 and MUC = 28. Calculate Sarah's marginal rate of substitution at this consumption bundle and interpret your result.
  4. Given the quantities consumed in (c), is Sarah maximising her utility? If not, explain how she should change her consumption in order to maximise utility
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