Suppose that Ken cares only about bathing suits (B) and flip-flops (F). His utility function is...

Suppose that Ken cares only about bathing suits (B) and flip-flops (F). His utility function is U = B 0.75F 0.25. The price of bathing suits are $12, and the price of flip-flops are $6. Ken has a budget of $240. (a) Draw and label a graph containing Ken’s budget line with bathing suits (B) on the x-axis and flip-flops (F) on the y-axis. Graph the x and y intercepts and determine the slope of the budget line. (b) Define and show mathematically the two conditions that need to be met for a consumption allocation {B ∗ , F ∗} to maximize utility. (c) What is the marginal utility of good B (MUB) and of good F (MUF) for Ken. (d) What is the optimal choice of B and F for Ken to maximize his utility? Label this point A on your graph from part (a). (e) What is the utility generated by Ken from his optimal consumption of B and F from part (d)? Find another bundle that also achieves this utility, label this new bundle point B on your graph from part (a) and draw an indifference curve between points A and B

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Rahul Sunny answered 1 year ago

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