Suppose Frank enjoys traveling and his utility is a function of the number of airplane trips he takes and the number of bus rides he takes. His utility function is given by U(b,p)=3b^(0.4)p^(0.8). A trip on a plane costs $400, a trip on the bus costs $50 and Frank has $3,000 to spend on travel.
a. Draw Frank's budget line on a graph with bus trips on the vertical axis.
b. Calculate AND INTERPRET the slope of Frank's budget line.
c. Draw a representative indifference curve on your graph and provide a function that describes the slope of this indifference curve (i.e., find Frank's marginal rate of substitution). What is the INTERPRETATION of the marginal rate of substitution?
d. What two conditions must be met in order for Frank to maximize his utility?
e. What are the utility maximizing quantities of plane trips and bus trips for Frank?
1.
Suppose Frank enjoys traveling and his utility is a function of the number of airplane trips he takes and the number of bus rides he takes.His utility function is given by U(b,p)=3b0.4p.8.A trip on a plane costs $400,a trip on the bus costs $50 and Frank has $3,000 to spend on travel. a. Draw Frank's budget line on a graph with bus trips on the vertical axis b.Calculate AND INTERPRET the slope of Frank's budget line c. Draw a representative indifference curve on your graph and provide a function that describes the slope of this indifference curve (i.e.,find Frank's marginal rate of substitution). What is the INTERPRETATION of the marginal rate of substitution? d. What two conditions must be met in order for Frank to maximize his utility? e. What are the utility maximizing quantities of plane trips and bus trips for Frank?
