You work in the Economic Planning Department of a consultant, Econ Consult. You have been asked by the Managing Director to work in a small group with 3 other people to write a response to the following enquiry.

Company Name : We need to know
Contact Name : Dr J Jack
Company Address : Room 101, 77 Old Road, Bath, NW29

Could you help me with the following questions

Assume: Andy enjoys both books and CDs. His preferences between various combinations of books and CDs are shown in the Table.

Table Andy's preferences between books and CDs

1. Plot the indifference curves.
2. Which set would Andy like best ? Explain your answer.
3. Define the marginal rate of substitution.
4. Using Set 1 in Table 1, what is the marginal rate of substitution of books for CDs for the 8th CD.
5. Using Set 1 in Table 1, what is the marginal rate of substitution of books for CDs for the 37th CD.
6. Andy has a budget of £300 to spend on CDs and books, where a book costs £10 and a CD costs £10. On the graph draw the budget line.
7. What is the optimum combination of books and CDs ? Explain your answer.
8. Assume the price of books increased to £15. Draw the new budget line.
9. What is the optimum combination of books and CDs at the higher price?

Your findings need to be presented in two ways, the first will be as a written report with covering letter, second will be as a question and answer session on the content of the report.

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