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Rachel’s utility funtion U = x ∗ y, where MUx = y and MUy = x....

Rachel’s utility funtion U = x ∗ y, where MUx = y and MUy = x. The price of x is 2 and the price of y is unknown and equal to the variable py. Rachel’s budget constraint is 40 = 2 ∗ x + py ∗ y. When Rachel maximizes utility subject to her budget constraint, she purchases 5 units of y. What must be the price of y and the amount of x consumed? (Hint: solve for how her choice of y will depend on py.)

How do u solve it. please i need help

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Answer #1

As given , the utility function is a well wehaved utility function , that is cobb doglus utility function with power to x and y being 1 , which also means that both x and y are equally important to the consumer and he spends equal amount of money income on x and y

So if money income is 40 , 20 will be spent on x and 20 will be spent on y...

If 20 is spent on y and if 5 units are purchased then it is obvious that the price of y would be 4 , that is 4 x 5 = 20

Similarly , if 20 is spent on x and the price is 2 then 10 units would have been purchased ....

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