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Charlie's utility function for his consumption of apples xA and bananas xB is u(xA, xB) =...

Charlie's utility function for his consumption of apples xA and bananas xB is u(xA, xB) = xAxB. If the price of apples is pA = 3 and the price of bananas is pB = 1, and Charlie has $12 to spend on apples and/or bananas, then: The budget equation is 3 x A + x B = 12 And the optimization condition (to maximize Charlie's utility) is − x B x A = 3 Given these two conditions, find Charlie's optimal bundle: (xA*, xB*) = ( , ).

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Answer #1

So, optimum bundle is Xa= 2 and Xb= 6.

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