Answer to Question #275842 in Microeconomics for Sanjali

Question #275842

Sanjana loves to read books(B) and likes to watch movies (M) as well. She derives double the satisfaction from reading a book than watching a movie. Her utility function is as follows



U(B, M) = 2B + M



Where B and M are the number of books and movies respectively.



a. Explain the shape of the indifference curve using diagrams. [3 MARKS, Word limit: 200] b. The income available with her is INR60. And price of movie ticket is INR 10 and that of a book is INR 15. Will she spend her entire budget and why? What will be her consumption, explain why?

1
Expert's answer
2021-12-06T16:58:03-0500

(a)

Here we have Sanajanas preferences to be linear in both B and M and therefore we have straight line downward sloping indifference curve which exhibits perfect substitute preference.


(b)

Now here,

"MRS=\\frac{MU_B}{MU_M}=2"

"\\therefore" slope of the budget line is:

"=\\frac{15}{10}=1.5"

"\\therefore" "MRS>\\frac{P_B}{P_M}"

And so, only books will be consumed i.e.

"B^*=\\frac{60}{15}=4units" and

"M^*=0units." i.e. movies will not be consumed.


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