Each term, Dana, a student at Cabrini Community College has a budget of $4,000 she can spend on college credits and drama classes. Each college credit costs $200, while a drama class costs $100.
a) In a graph, plot Dana’s budget constraint.
Dana considers college credits an imperfect substitute to drama classes and this year she is taking ten college credits and twenty drama classes.
b) In your graph, add an indifference curve to illustrate Dana’s optimal combination of college credits and drama classes.
Suppose Cabrini Community College charged Dana a flat tuition of $2,000 instead of the $200 per credit fee.
c) According to your graph, would Dana take more college credits than before? Would her utility be higher?
d) What if Cabrini Community College charged her a flat tuition of $2,100?