Suppose Juan's utility function is given by U = FC, where F and C are the two goods avail- able for purchase: food and clothing.
a. Graph Juan's indifference curves for the following levels of utility: 100, 200, and 300.
b. Are these curves convex or concave to the origin? What does this shape imply about Juan's willingness to trade food for clothing?
c. Suppose Juan's budget is $100 and the prices of F and C are both $5. Graph the budget constraint.
d. How many units of food and clothing will Juan purchase at these prices and income? Show graphically. What is his corresponding level of utility?
e. The Johnson Company is the sole producer of clothing. What can the company do to induce Juan to purchase more clothing? Show graphically. (The graph does not have to be exact.)