Answer to Question #299632 in Microeconomics for MAKGOROMETSA

Question

1.2Suppose that Rose’s monthly income is 200 R/month and she spends her income on two goods: movies and books. The price of movies is Pm=R20 and price of books Pb=R10. Answer the following questions. a) Suppose she spends all her money on these two goods. Draw her budget constraint. Show at least 4 points on this constraint which are attainable (Put books on the horizontal axis). [05] b) Last month she went to movies 5 times and bought 10 units of books. Is this attainable for her? Show it on the figure you sketched in ‘a’. [03] c) Suppose the price of movies increased to R25. Sketch her new budget line. Can you tell from this information how she could allocate her budget between the two goods in order to maximize her utility? Show your workings. [06

Answer 1

a)10x+20y=200

 points on this constraint which are attainable 

b)

$5\times20+10\times10=100+100=200$

this is attainable for her, Rose’s monthly income is 200

c) 10x+25y=200

8 movies, 10 books  to maximize her utility