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1. Jane receives utility from days spent traveling on vacation domestically (D) and days spent traveling on vacation in a foreign country (F), as given by the utility function U(D,F)=10DF. In addition, the price of a day spent traveling domestically is $50, the price of a day spent traveling in a foreign country is $300, and Jane's annual travel budget is $1000.
a) Illustrate the indifference curve associated with a utility of 400 and the indifference curve associated with a utility of 1000.
b) Graph Jane's budget line on the same graph.
c) Can Jane afford any of the bundles that give her a utility of 400? What about a utility of 1000?
d) What is the optimal bundle for Jane, what is the maximum utility?
e) If there is a special rate for travelling in a foreign country, the price decreases to $200 per day, graph the new budget line. What is the optimal bundle for her now?
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