Question

(refer to the figure below) part a: If the price of good X is $5, the price of good Y is $20, and the consumer's income is $40, what will be the consumption bundle that maximizes this consumer's utility? part b: If the price of good X is $6, the price of good Y is $6, and the consumer's income is $24, what will be the consumption bundle that maximizes this consumer's utility?

Answer 1

horizontal intocept of budent live [put y=0/ pait a) ） pice of good x, Pe = $5 puce of good. Y; Py = $20 Income, I = $40 thee, budant Constraint, I= XPx typy -) 40- 5X + 20y Now, horizontal in decept of =) = 8 =) budent line [put y=0 40 = 5x +(2010) Vinttal is incept of budant line [put x = 0] 40 = (5*0 + 20y .Y=2 Joining horizontal and unistical intocept, Weaut budant line where. the indiffuence cure is tauqunt to budant live at point Cie at Consumption budle (x, y) = (24) (4,1) tices the consmption budle that manimizes this conson's utility is (X,Y)= (4,1) price of good x, px= $6 price of good y, py=96 Income I =$24, 24- 68 + 6y 24 = 6x +6*0)=) X=4 vutial in the cept of budget line [put X=0] 24 = (670) toy .=) Y= 4 part be Budant contraint

maimiza Joining horizontal and rustical intecepts we ht budout line is tangent to the 2, 2) where the indiffuence cuve budent line at utility (X,Y)= i.e at point (2) marinising budle Æ B. the Hices this Consmin's atlity is (X,Y) (x,y) = (22)