Questions & AnswersMicroeconomics

Sarah receives utility from days spent traveling on vacation...

Question
Answered step-by-step
Asked by ProfGuanacoPerson552 on coursehero.com

Sarah receives utility from days spent traveling on vacation...

Sarah receives utility from days spent traveling on vacation domestically (D) and  days spent traveling on vacation in a foreign country (F), as given by the utility function  U(D,F)=10DF. In addition, the price of a day spent traveling domestically is $100, the price of a  day spent traveling in a foreign country is $400, and Sarah's annual travel budget is $4000. 

6.1. Illustrate the indifference curve associated with a utility of 800 and the indifference  curve associated with a utility of 1200. (Hint: To get the IC associated with utility of 800,  set U(D,F)=800 and solve for D as a function of F, which will allow you to plot the  indifference curve). 

6.2. Graph Sarah's budget line on the same graph. 

6.3. Can Sarah afford any of the bundles that give her a utility of 800? What about a  utility of 1200?

6.4. Find Sarah's utility-maximizing choice of days spent traveling domestically and days  spent in a foreign country. You are given that the marginal utility of domestic travel is  MUD=10F and marginal utility of foreign travel is MUF=10D 

Hint: You need to find the point where the slope of the budget constraint is equal to the  slope of the indifference curve. Solve for D in terms of F; then plug it into the budget  constraint to find B and F. This is equivalent to solving the following system of equations: 

Screen Shot 2022-10-21 at 1.00.50 AM.png


 

Answer & Explanation

Solved by verified expert
Answered by MajorMongoose2613 on coursehero.com
<p>sectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. F<br/> </p>sectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a moles
CliffsNotes Logo

Unlock access to this and over
10,000 step-by-step explanations

Unlock Explanation

Have an account? Log In

Step-by-step explanation

<figure class="image"><img src="/qa/attachment/36298506/" alt="36298506"/></figure><p> </p><p>sectetu</p><p> </p><p>sectetur adipis</p><p>sectetur adipis</p><p>sectetur adipiscing elit. Nam lacinia pulvina</p><p>sectetur adi</p><p> </p><p>sectetur</p><p> </p><p>sectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia</p><figure class="image"><img src="/qa/attachment/36298528/" alt="36298528"/></figure><p>sectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui le</p>
2 attachments
Subscribe to unlock attachment
JPEG
Subscribe to unlock attachment
JPEG

Get unstuck with a CliffsNotes subscription

Example CliffsNotes Question and Answer
Unlock every step-by-step explanation, download literature note PDFs, plus more.Get Access

Related Q&A