5. Suppose that Bridget and Erin spend their incomes on two goods, food (F) and

Question

5. Suppose that Bridget and Erin spend their incomes on two goods, food (F) and clothing (C). Bridget’s preferences are represented by the utility function U(F,C) = 10FC, while Erin’s preferences are represented by the utility function U(F,C) = 0.20F2C2. a. With food on the horizontal axis and clothing on the vertical axis, identify on a graph the set of points that give Bridget the same level of utility as the bundle (10,5). Do the same for Erin on a separate graph. b. On the same two graphs, identify the set of bundles that give Bridget and Erin the same level of utility as the bundle (15,8). c. Suppose each individual has an income of $100 and that the price of food is $5 and the price of clothing is $10. Determine the optimal combination of food and clothing consumed by each individual.

Explanation / Answer

A) Consumer-BR indifference curve is drawn given the utility function as u (F, C) =10FC

Points E and F represents the set of points that give consumer the same level of utility as the bundle (10, 5).

Graph is given below:

Similarly the graph for consumer-ER given the utility function is as follows:

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