Question
Aneeta spends all her pocket money on chocolates(x)and icecream(y). Her utility function is U(x,y)= min(4x,2x+y). Aneeta consumes 15 chocolates and 10 icecreams. The price of chocolates is Rs.10. Find out her pocket money.
Answers
economyst
First, lets break apart the Utility function. We know Aneeta consumes 15 x and 10 y. Her utility is therefore min(4*15, 2*15+10) = min(60, 40) = 40. So, for here relevant consumption pattern, her utility function is simply U=2x+y.
Utility will be maximized when MUx/MUy = Px/Py
MUx is the first derivitive of U with respect to x. So, MUx=2, MUy=1. So MUx/MUy = 2. You are given Px=10. Ergo, Py must be 2.
Take it from here to find amount of pocket money.
Utility will be maximized when MUx/MUy = Px/Py
MUx is the first derivitive of U with respect to x. So, MUx=2, MUy=1. So MUx/MUy = 2. You are given Px=10. Ergo, Py must be 2.
Take it from here to find amount of pocket money.