Question: Bob goes to the tanning salon 20 times a month. His income is $1,000 per month and his visits to the salon cost $8 per visit.
a. Draw Bob's budget line for visits to the salon and all other goods, show the consumption bundle that maximizes his satisfaction, and draw the indifference curve through that point.
b. Recently, a new tanning club opened which offers identical facilities but which charges a flat fee of $120 per month plus an additional $2 per visit. Draw Bob's budget line if he were to join this new club.
c. Would Bob continue to go to the old salon or would he join the new tanning club. Why?