Problem 1 Consider the following utility function: U(x₁, x₂) = (x₁)²x₂. Task 1 : Suppose a consumer with the above utility function faces prices p₁ = 2 and P2 = 3 and he has an income m = 18. What's his optimal bundle to consume? Illustrate it in the commodity space with the budget line and the optimal bundle's indifference curve. Task 2: Suppose that you observe that this consumer chooses x₁ = 1 and x₂ = 4 but you cannot observe the prices, and you know that he is a utility maximizer with income m = 18. What can you infer about the prices he faces? If so, what are the prices?
Problem 1 Consider the following utility function: U(x₁, x₂) = (x₁)²x₂. Task 1 : Suppose a consumer with the above utility function faces prices p₁ = 2 and P2 = 3 and he has an income m = 18. What's his optimal bundle to consume? Illustrate it in the commodity space with the budget line and the optimal bundle's indifference curve. Task 2: Suppose that you observe that this consumer chooses x₁ = 1 and x₂ = 4 but you cannot observe the prices, and you know that he is a utility maximizer with income m = 18. What can you infer about the prices he faces? If so, what are the prices?
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.8P
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