Toni likes to purchase round trips between the cities of Pulmonia and Castoria and other goods out of her income of $10,000. Fortunately, Pulmonian Airways provides air service and has a frequent flyer program. A round trip between the two cities normally costs $500, but any customer who makes more than 10 trips a year gets to make additional trips during the year for only $200 per round trip.
a) On a graph with round trips on the horizontal axis and "other goods" on the vertical axis, draw Toni's budget line. (Hint: This problem demonstrates that a budget line need not always be a straight line.)
b) On the graph you drew in part (a), draw a set of indifference curves that illustrates why Toni may be better off with the frequent flyer program.
c) On a new graph draw the same budget line you found in part (a). Now draw a set of indifference curves that illustrates why Toni might not be better off with the frequent flyer program.