4. Tim wants to maximise his utility given his utility function of U (A, B) = A²B4. He faces the following prices and income: PA = 25; PB = 20; M = 250. However, a change in the price of good A to P₁ = 22 will change his optimal bundle. If he is only interested in being able to consume his original bundle of goods, how much income would he need after the price change? (a) Tim would require £54 less income (b) Tim would require £18.33 more income

4. Tim wants to maximise his utility given his utility function of U (A, B) = A²B4. He faces the following prices and income: PA = 25; PB = 20; M = 250. However, a change in the price of good A to P₁ = 22 will change his optimal bundle. If he is only interested in being able to consume his original bundle of goods, how much income would he need after the price change? (a) Tim would require £54 less income (b) Tim would require £18.33 more income

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

4.
Tim wants to maximise his utility given his utility function of U(A, B) = A²B4. He faces
the following prices and income: PA = 25; PB = 20; M = 250. However, a change in
the price of good A to PA = 22 will change his optimal bundle. If he is only interested in
being able to consume his original bundle of goods, how much income would he need
after the price change?
(a) Tim would require £54 less income
(b) Tim would require £18.33 more income
(c) Tim would require £10 less income
(d) Tim would require £16.66 more income
(e) Tim would require £16.66 less income

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