Reference no: EM13208871
Jane receives utility from days spent traveling domestically (d) and days spend traveling in foreign countries (f). Her utility function is U(d, f) = 10df. She has $4000 per year to spend on travel. It costs $100 to spend a day traveling domestically and $400 to spend a day traveling abroad.
a. Graph Jane's budget line. Be sure to indicate the values of both the y-axis and x-axis intercepts.
b. What is Jane's opportunity cost of a day spent traveling in foreign countries (measured in days spent traveling domestically)?
c. Sketch the indifference curves associated with utility levels of 800 and 1200. On each curve, be sure to plot at least 3 specific bundles.
d. What is the marginal utility of a day spent traveling domestically for Jane? Hint: your answer will be a function that depends on the number of days spent traveling in foreign countries.
e. What is the marginal utility of a day spent traveling in a foreign country for Jane? Here too your answer will be a function.
f. If Jane spends 8 days traveling domestically and 8 days traveling abroad, what will be her marginal rate of substitution of foreign travel for domestic travel (i.e. - her marginal value of a day of foreign travel, measured in days of domestic travel)?
g. What is the best, affordable bundle for Jane?
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: Jane receives utility from days spent traveling domestically (d) and days spend traveling in foreign countries (f). Her utility function is U(d, f) = 10df. She has $4000 per year to spend on travel. It costs $100 to spend a day traveling domestical..
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