Homework Help is Here – Start Your Trial Now!
Business
Economics
Note: please answer part b,c,d   1st part answer already complete you can take reference from it   Given:   U(x,y) = x0.25 y0.75   MUx=0.25 x-0.75 y0.75   MUy = 0.75 x0.25 y-0.25   Px=2   Py=12       a)Find the minimum cost to reach a utility of 1,189.   b)Now assume that Px increases to 4 and find the new   minimum cost.   c) What is the savings from substitution in part b)?   d) From the part a) outcome, what lower Py would allow   a utility of 2,000?

Note: please answer part b,c,d   1st part answer already complete you can take reference from it   Given:   U(x,y) = x0.25 y0.75   MUx=0.25 x-0.75 y0.75   MUy = 0.75 x0.25 y-0.25   Px=2   Py=12       a)Find the minimum cost to reach a utility of 1,189.   b)Now assume that Px increases to 4 and find the new   minimum cost.   c) What is the savings from substitution in part b)?   d) From the part a) outcome, what lower Py would allow   a utility of 2,000?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

 

Note: please answer part b,c,d  

1st part answer already complete you can take reference from it

 

Given:

 

U(x,y) = x0.25 y0.75

 

MUx=0.25 x-0.75 y0.75

 

MUy = 0.75 x0.25 y-0.25

 

Px=2

 

Py=12

 

 

 

a)Find the minimum cost to reach a utility of 1,189.

 

b)Now assume that Px increases to 4 and find the new

 

minimum cost.

 

c) What is the savings from substitution in part b)?

 

d) From the part a) outcome, what lower Py would allow

 

a utility of 2,000?

For cost minimization: MU MU. = 0.25 x-0.75 y0.75 0.75 r025 y-0.25 2y = x y = Let the income that is I= 16,000 Budget equation can be written as : I = Px.x + Py.y 16, 000 %3D 2х + 12y 16, 000 = 2x + 12. 16, 000 = 2x + 6x x = 2,000 у- 1,000 At x =2,000 and y= 1,000 Utility 1187.89 Answer: So cost will be minimizes at x=2,000 and y=1,000
Transcribed Image Text:For cost minimization: MU MU. = 0.25 x-0.75 y0.75 0.75 r025 y-0.25 2y = x y = Let the income that is I= 16,000 Budget equation can be written as : I = Px.x + Py.y 16, 000 %3D 2х + 12y 16, 000 = 2x + 12. 16, 000 = 2x + 6x x = 2,000 у- 1,000 At x =2,000 and y= 1,000 Utility 1187.89 Answer: So cost will be minimizes at x=2,000 and y=1,000
Expert Solution
steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Utility Maximization
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.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS