Kate has a monthly income of $500. She spends her income on cell phone calls (measured...

Kate has a monthly income of $500. She spends her income on cell phone calls (measured in minutes on the horizontal axis) and other goods (measured in units on the vertical axis). The price of a unit of other goods is P_Y=1. Kate’s mobile phone company offers her the choice of two cell phone plans:

Plan A: Pay a $40 monthly fee and make calls for $0.20 per minute.

Plan B: Pay no monthly fee and make calls for $0.40 per minute.

27. Suppose Kate has a utility function of the form U=min(0.1X,Y). Kate’s utility at her utility maximizing bundle is ______166.67_______ utils.

28. Suppose instead that Kate has well-behaved preferences and is currently buying minutes under Plan A. Now suppose that Plan B becomes available, and by coincidence her budget lines under Plan A and Plan B happen to intersect at the number of minutes she is currently buying under Plan A. Kate will be (better off, worse off, just as well off) _____________ buying minutes under Plan B.

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Rahul Sunny answered 1 week ago

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