Donna and Jim are two consumers purchasing strawberries and chocolate. Jim’s utility function is ?(?,?) = ?? and Donna’s utility function is ?(?,?) = ?^{2}? where x is strawberries and y is chocolate. Jim’s marginal utility functions are MU_{x}=y and MU_{y}=x while Donna’s are MU_{x}=2xy and MU_{y}=x2. Jim’s income is $100, andDonna’s income is $150.
To get optimal bundle, one has to equate slope of indiffernce curve to slope of budget line.
Income = Px . X + Py . Y
150 = 2 X + 4 Y or
75 = X + 2 Y
This is the budget line equation.
we can substitute X = 4Y in budget line equation to o...
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