Determine the optimum combination of milk and biscuits, Financial Accounting

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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.

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