Roberta Lives Alone on a Deserted Island

Essay

Roberta lives alone on a deserted island. She can spend her time gathering coconuts or bananas. She has 16 hours available each day and can gather 4 coconuts in an hour or 8 bananas in an hour. Diagram Roberta's budget constraint. Given that Roberta's Marginal Utility of bananas is always 25 and her Marginal utility of coconuts is always 100, what is her optimal consumption? One day an individual from a neighboring island arrives by boat and offers to exchange any number of fruits at a rate of 1 coconut for 1 banana. Diagram Roberta's budget constraint at this exchange rate assuming she will now spend all her time gathering bananas. Is Roberta better off? What does she consume?