ECO 305 Lecture 3: Homework 3
ECO 305
Prof. Mirhosseini
31 January 2018
Assignment 3
1. A. Paula, a former actress, spends all her income attending plays and movies and likes
plays exactly three times as much as she likes movies. (Plays and movies are one for
three substitutes) (40 points) Draw her indifference map.
1. B. Paula has $120/wk budget for entertainment (watching plays and movies). If play
tickets cost $12 each and movie tickets cost $5 each, show her budget line and highest
attainable curve. How many plays and how many movies will she see?
2. Picabo is an aggressive skier that she wears out two pairs of skis for every pair of
bindings she wears out (perfect complements). Skis are $480/per and bindings are
$240/per. If her budget is $3600, draw her budget line, draw her indifference curves
and calculate the optimal consumption of Skis and Bindings. (40 points)
3600/480 = 7.5
3600/240 = 15
She will buy 3 pairs of bindings and 6 sets of skis
because 2 Skis : 1 Pair of Bindings.
0
2
4
6
8
10
12
14
16
0 2 4 6 8
Bindings
Skis
Budget
Constraint
Indifferenc
e Map
0
5
10
15
20
25
30
0 1 2 3 4 5 6 7 8 9 10
Movies
Plays
B
Budget
Constraint
0
1
2
3
4
5
6
7
0 1 2 3
Movies
Plays
A
U 1
U 2
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
If play tickets cost each and movie tickets cost each, show her budget line and highest attainable curve. M: picabo is an aggressive skier that she wears out two pairs of skis for every pair of bindings she wears out (perfect complements). If her budget is , draw her budget line, draw her indifference curves and calculate the optimal consumption of skis and bindings. (40 points) She will buy 3 pairs of bindings and 6 sets of skis because 2 skis : 1 pair of bindings. i s g n d n.
