Determine the optimum combination of milk and biscuits, Financial Accounting

1. Jim buys only milk and biscuits.   

(a) In 2004, Jim earns $100, milk costs $2, biscuits cost $4 per dozen. Draw Jim's budget constraint

 (b) Now suppose that all prices increase by 10% in the year 2005 and that Jim's salary increases by 10% as well. Draw Jim's new budget constraint. How would Jim's optimum combination of milk and biscuits in 2005 compare with his optimum combination in 2004.

 (c) Would your answer to part (b) change if Jim's salary didn't change? Why?

 

Posted Date: 4/1/2013 3:24:51 AM | Location : United States







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