Consider a consumer who purchases two goods, x and y. The consumer’s utility function is U(x, y) = xy. Assume initially that the consumer’s income is $160, the price of x is Px= $8, and the price of y is Py= $1. a) Find the utility maximizing bundle of x and y. b) Find the total utility at the utility maximizing bundle. c) Now assume the price of x decreases to $4. Re-compute the values from part a) at the new price.
Consider a consumer who purchases two goods, x and y. The consumer’s utility function is U(x, y) = xy. Assume initially that the consumer’s income is $160, the price of x is Px= $8, and the price of y is Py= $1. a) Find the utility maximizing bundle of x and y. b) Find the total utility at the utility maximizing bundle. c) Now assume the price of x decreases to $4. Re-compute the values from part a) at the new price.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.11P
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2. Consider a consumer who purchases two goods, x and y. The consumer’s utility function is U(x, y) = xy. Assume initially that the consumer’s income is $160, the price of x is Px= $8, and the price of y is Py= $1.
a) Find the utility maximizing bundle of x and y.
b) Find the total utility at the utility maximizing bundle.
c) Now assume the price of x decreases to $4. Re-compute the values from part a) at the new price.
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