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a. If the initial allocation of Franks entertainment budget is two trips to the club (2C) and three
basketball games (3B) per week, is he maximizing his utility? Why or why not?
b. What combination of trips to the club and basketball games per week would maximize Franks
utility given his budget constraint? What is Franks total utility given this combination?
c. Show graphically how Franks opportunity set would change if real income was to increase to
$42. In one graph, draw the opportunity sets for real income equal to $21 and real income equal
to $42. Put trips to the club on the x-axis and basketball games on the y-axis. Next, draw the
indifference curve which contains the utility maximizing combination of trips to the club and
basketball games when real income is equal to $21 on the same graph. Label all axes, curves, and
coordinates. At real income equal to $42, would the initial optimal point in letter b still hold?
Why or why not?
1 Please note that problem numbers 1 to 3 are adapted from Case, K. and Fair, R. (2007). Principles of Economics
(8th edition.). Singapore: Prentice Hall, Inc.
Term 1, AY2016-17
4.1 Assuming no budget constraint, at which indifference curve is the consumers total utility the
highest in consuming shakes and pizzas achieved? Does this indifference curve contain the
bundle of good that would maximize the consumers utility in consuming shakes and pizzas?
Justify your answer.
4.2 If the goal is to maximize utility given a particular budget, would the consumer choose to
consume the combination of shakes and pizzas represented by point D? Why or why not?
4.3 If the goal is to maximize utility given a particular budget, would the consumer choose to
consume the combination of shakes and pizzas represented by point E? Why or why not?
4.4 Points C and D are on the same indifference curve. What does this tell us about the utility
generated at these points? Explain.
4.5 Identify the utility maximizing bundle of goods for this consumer. Theoretically, why is this
said to be the combination of shakes and pizzas that would yield the highest utility for the
consumer given a specific budget?
Source: Figure 1. Utility Maximization. Adapted from Utility Maximization. Retrieved on 16 September 2012 from
http://courses.byui.edu/ECON_150/ECON_150_Old_Site/images/5-2_Indifference_Curves_08.jpg