1. Utility is given by the function U(X,Y) (X+ 5)0.Y0.3.The price of X is P, and the price of Y is Py. Income is I.a. Solve for the optimal values of X and Y in terms ofPy, Py, and I. Show your work.b. Are goods X and Y complements or substitutes?Explain.c. Are corner solutions possible? If yes, explain when it(or they) can happen. Show your work.d. Draw the Engel curve for good X. Label the slopeand both axes.e. Suppose I = $100, P, = $1, and P, = $1. Then P,rises to $2. Using the utility function above,calculate the sizes of the substitution effect, incomeeffect, and total effect with respect to good X only.Anyone short of Einstein will need a calculator of%3Dsome sort.

The following parts are solved below:

1. Utility is given by the function U(X,Y) (X+ 5)0.6y0.3. The price of X is P, and the price of Y is P. Income is I. a. Solve for the optimal values of X and Y in terms of P, Py, and I. Show your work. b. Are goods X and Y complements or substitutes? Explain. c. Are corner solutions possible? If yes, explain when it (or they) can happen. Show your work.

1. Utility is given by the function U(X,Y) (X+ 5)0.6y0.3. The price of X is P, and the price of Y is P. Income is I. a. Solve for the optimal values of X and Y in terms of P, Py, and I. Show your work. b. Are goods X and Y complements or substitutes? Explain. c. Are corner solutions possible? If yes, explain when it (or they) can happen. Show your work.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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