Consider the Cobb-Douglas utility function of a consumer is given as u (z y) := 1"y where a > b and the sum(a, b) and the product(a, b) are 1 and 2/9 respectively, find a. the budget needed, m, to be able to afford the desired utility number u if price of good r and y are p, and py respectively. b. Given that p, = 2.00, py = 3.00 and m = 150, what is the optimal bundle available to the consumer? c. Given that the price of commodity y increases by 20%, what becomes the new optimal bundle available to the consumer

Consider the Cobb-Douglas utility function of a consumer is given as u (z y) := 1"y where a > b and the sum(a, b) and the product(a, b) are 1 and 2/9 respectively, find a. the budget needed, m, to be able to afford the desired utility number u if price of good r and y are p, and py respectively. b. Given that p, = 2.00, py = 3.00 and m = 150, what is the optimal bundle available to the consumer? c. Given that the price of commodity y increases by 20%, what becomes the new optimal bundle available to the consumer

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

Consider the Cobb-Douglas utility function of a consumer is given as
u (r y) := x"y"
where a > b and the sum(a, b) and the product(a, b) are 1 and 2/9 respectively, find
a. the budget needed, m, to be able to afford the desired utility number u if price of good r and
y are p, and py respectively.
b. Given that p, = 2.00, py = 3.00 and m = 150, what is the optimal bundle available to the
consumer?
c. Given that the price of commodity y increases by 20%, what becomes the new optimal bundle
available to the consumer

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