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?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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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

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 x = 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?

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