Douglas' utility function is u = min{2x₁, x₁ + x₂}. Suppose the prices and income are (p₁, P2, m) = (1, 2, 20). Then his utility-maximizing consumption of the first good is units and of the second good is units. Suppose the prices and income are (p1, p2, m) = (1, 1, 20). Then his utility-maximizing consumption of the first good is units and of the second good is units.
Douglas' utility function is u = min{2x₁, x₁ + x₂}. Suppose the prices and income are (p₁, P2, m) = (1, 2, 20). Then his utility-maximizing consumption of the first good is units and of the second good is units. Suppose the prices and income are (p1, p2, m) = (1, 1, 20). Then his utility-maximizing consumption of the first good is units and of the second good is units.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 11SQ
Related questions
Question
Help me
Transcribed Image Text:Douglas' utility function is u =
min{2x₁, x₁ + x₂}.
Suppose the prices and income are (p₁, P2, m) = (1, 2, 20).
Then his utility-maximizing consumption of the first good is
units and of the second good is
units.
Suppose the prices and income are (p1, p2, m) = (1, 1, 20).
Then his utility-maximizing consumption of the first good is
units and of the second good is
units.
Expert Solution
Step 1: Utility Function - Introduction
Given Utility Function : U=min{2x1,x1+x2}
It is a complementary utility function where two goods are consumed together. Consuming only one good will give no utility to the consumer.
So, 2x1=x1+x2
2x1-x1=x2
x1=x2
Now, we will substitute the above-obtained equation in the budget line.
A budget line represents the combination of goods that can be consumed given prices and income.
BL: p1x2+p2x2=M
Given:
p1=1
p2=2
M=20
1x1+2x2=20
Since, x1=x2
x1+2x1=20
3x1=20
x1*=20/3=6.67
x2*=6.67
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
