Question
Peter has a utility function U(x, y) = min {2x, y}. The price of good x...
Peter has a utility function U(x, y) = min {2x, y}. The price of good x is $5, and the price of good y is $10. If Peter's income is $200, how many units of good y would he consume if he chose the bundle that maximizes his utility subject to his budget constraint?
Answers
U(x, y) = min (ax, y) So In this case, it is written as: minimum of ax and y 231= y Bas Py =10 M=200 Budget constraint Pia +Py. Y=M Sa t loy =200 Substituting y values from eg (1) sa + 10(2x) = 200 Sit 201 =200 asu = 200 - 200 25 x = 8 Substituting a into units. equation ④y = 2(8) y = 16 units. x=8 units maximise his will utility.
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