Herbert spends all $50 of his pay check on food and shelter which each cost $5 per unit.
a. What is the equation of his budget line?
b. Sketch the budget line and two possible indifference curves that Herbert might have. One indifference curve should show Herbert spending his entire budget but consuming too much shelter. Label that point on the graph A. The other indifference curve should show Herbert optimizing his utility. Label the optimal point B.
c. What is Herbert’s marginal rate of substitution between food and shelter when he is consuming his utility maximizing market basket?