You work for a company which subsidizes your traveling with $1000 per month. How

Question

You work for a company which subsidizes your traveling with $1000 per month. However, you cannon exceed $600 for hotel and $400 for meals. Assume that everywhere you travel, the price for one night in a hotel is $100 and the price for one meal is $20. Assume that you always exhaust your budget for traveling. 1) How would you draw this budget constraint with hotel on horizontal axis and meals on vertical. 2)Explain to your boss why you would (most likely) be better off with $1,000 but no restrictions on spending. How would you draw the indifference curves? Any insight to this question would be greatly appreciated.

Explanation / Answer

20 per meal so 20*2 =40per day 100x+40y =1000 this is line with budget constraint with hotel on horizontal axis and meals on vertical .... also for max utilization 100y =600 y =6 days .. also 40y =400 y =10 days hence there comes the budget constraint that max stay is 6 days and max meals are for 10 days hence if there is no constraint on stay and meal individually then 100p+40p =1000 p =7.14 == 7 days hence utility would have increased.. hence one would (most likely) be better off with $1,000 but no restrictions on spending...

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