Let a consumer's utility function be U(r, y) = r/2y/2. The consumer's income is I = 160 and prices for the two goods are, respectively, p. = 1 and py = 4. (a) Write down the utility maximization problem and compute the optimal consumption basket. (b) Suppose now the price of good y is equal to p, = 16 (while the price of good r stays constant). Compute the new optimal consumption basket.

Let a consumer's utility function be U(r, y) = r/2y/2. The consumer's income is I = 160 and prices for the two goods are, respectively, p. = 1 and py = 4. (a) Write down the utility maximization problem and compute the optimal consumption basket. (b) Suppose now the price of good y is equal to p, = 16 (while the price of good r stays constant). Compute the new optimal consumption basket.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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