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Mariulka [41]
3 years ago
14

Linda loves buying shoes and going out to dance. Her utility function for pairs of​ shoes, S, and the number of times she goes d

ancing per​ month, T,​ is: ​U(S, T)​ = 2ST with marginal​ utilities: MUS​ = 2T and MUT​ = 2S. It costs Linda ​$ to buy a new pair of shoes or to spend an evening out dancing. Assume that she has ​$ to spend on shoes and dancing. ​
1.) Use the line drawing tool to draw​ Linda's budget line. Label this line​ 'Budget'. ​
2.) Use the point drawing tool to locate​ Linda's optimal consumption bundle. Label this point​ 'R'. Carefully follow the instructions​ above, and only draw the required objects.
Business
1 answer:
padilas [110]3 years ago
5 0

Answer:

See Explanation

Explanation:

Given

U(S,T) = 2ST

M_U_S =2T

M_U_T=2S

The following details are omitted from the question

P_S= \$50 --- Price of the Shoes

P_T = \$50 --- Spent on dancing

B = \$500 --- Budget on shoe and dancing

Solving (a): Her budget line

First, we determine her budget equation (B).

This is calculated by:

B = P_S * S + P_T *T

This gives:

500 = 50 * S + 50 * T

500 = 50 S + 50 T

Divide through by 50

10 =S + T

S + T = 10 --- The budget equation

<em>See attachment for the budget line equation</em>

Solving (a): Optimal Consumption Bundle Point

First, we determine the marginal rate of substitution (MRS) using:

MRS = \frac{MU_s}{MU_t} = 1

MRS = \frac{2S}{2T} =1

This implies that:

\frac{2S}{2T} = 1

Cross Multiply

2S = 2T * 1

2S = 2T

Divide by 2

S = T

Substitute T for S in the budget equation

T + T= 10

2T = 10

T=5

Recall that:

S = T

S = 5

So, the point if optimal consumption bundle is (5,5)

<em>See attachment for point R</em>

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