Question: Suppose Michael thinks that used and new textbooks (of the same author and same subject) are perfect substitutes. Suppose that the average price of a used textbook is 80 and 100 for a new one.

A) Suppose that last fall, Michael bought 5 used textbooks and spent 400 in new ones. How much money did Michael have to spend on books? If Michael is an utility maximizer, is this market basket his most preferred? Why or why not? Use a diagram to show your reasoning and explain it.

B) If Michael were an utility maximizer, how many books should Michael have bought last fall? Utility level? Show Michael’s budget constraint, indifference curves, and the optimal bundle.

C) Obtain Michael’s demand function for used textbooks.