1. Muhammad enjoys going to the aquarium (x) and playing basketball (y). His preferences on x and y are described by his utility function: U(x, y) = 100x23y3. He has a budget of £120 per week to spend on playing basketball and going to the acquarium. Knowing that p,=10 and py=10: 2/3,,1/3 (A) Find the optimal combination of x and y so that Muhammad maximizes his utility subject to the budget constraint. Show this graphically. (B) Consider now that the price of going to the aquarium increases to £20, the price of playing basketball is now £15 and the income did not change. How does this modify Muhammad's optimal bundle? Show this graphically. (C) Compare the optima in (A) and (B): has the valuation of y in terms of x changed? Explain.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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1. Muhammad enjoys going to the aquarium (x) and playing basketball (y).
His preferences on x and y are described by his utility function: U(x, y) =
100x23y3. He has a budget of £120 per week to spend on playing
basketball and going to the acquarium. Knowing that p,=10 and py=10:
,2/3,1/3
(A) Find the optimal combination of x and y so that Muhammad maximizes
his utility subject to the budget constraint. Show this graphically.
(B) Consider now that the price of going to the aquarium increases to £20,
the price of playing basketball is now £15 and the income did not change.
How does this modify Muhammad's optimal bundle? Show this
graphically.
(C) Compare the optima in (A) and (B): has the valuation of y in terms of x
changed? Explain.
Transcribed Image Text:1. Muhammad enjoys going to the aquarium (x) and playing basketball (y). His preferences on x and y are described by his utility function: U(x, y) = 100x23y3. He has a budget of £120 per week to spend on playing basketball and going to the acquarium. Knowing that p,=10 and py=10: ,2/3,1/3 (A) Find the optimal combination of x and y so that Muhammad maximizes his utility subject to the budget constraint. Show this graphically. (B) Consider now that the price of going to the aquarium increases to £20, the price of playing basketball is now £15 and the income did not change. How does this modify Muhammad's optimal bundle? Show this graphically. (C) Compare the optima in (A) and (B): has the valuation of y in terms of x changed? Explain.
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