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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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?
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
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
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
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
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)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
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-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education