The institutional research office has recently conducted a survey group of consumers.According to demographic data, the research office has given you…
The institutional research office has recently conducted a survey group of consumers.According to demographic data, the research office has given you the following:
Typical weekly consumer income $800
Price of Frosty Cola $10.00 per case
Price of Coca-Cola $20.00 per case
You want to break this data down for the chief financial officer in two forms: a slope- intercept equation for the typical consumer’s budget constraint and a graphical analysis showing him the typical consumer’s budget set. The CFO has specifically asked for the price of Frosty Cola to be the good on the vertical axis. (Round any quantity to the nearest whole unit in each part, if necessary.)
a) Derive the equation for the budget constraint in slope-intercept form.
b) Illustrate and explain the typical consumer’s budget set (again, place quantity of Frosty Cola on the vertical axis).
c) The CFO asks you if the price of Frosty Cola were to decrease to $5.00 per case, what would happen to the budget constraint? Illustrate and explain.
d) Lastly, the CFO asks you that if the typical consumer wished to purchase seven cases of Coca-Cola, how much Frosty Cola could that individual purchase? Calculate and show. Assume the original data.
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