Suppose Mia's utility function on lemon soda (X) and chips (Y) is given by U(X,Y) = X0.5Y0.5She has $80 per month to spend on lemon soda (X) and chips (Y).The prices of lemon soda (PX) and chips (PY) are $2 and $4 respectively.a. Solve for her optimal consumption bundle of lemon soda (X*) and chips (Y*)? i. Optimal Consumption in lemon soda (X*) : ii. Optimal Consumption in chips (Y*) : b. Suppose the price of lemon soda (X) increases to $8, what is the new optimal bundle? i. Optimal Consumption in lemon soda (X*) : ii. Optimal Consumption in chips (Y*) :

The answer to your question is given under 2 sub parts a and B as below :

Answered: Suppose Mia's utility function on lemon…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose Mia's utility function on lemon soda (X) and chips (Y) is given by U(X,Y) = X^0.5Y^0.5

She has $80 per month to spend on lemon soda (X) and chips (Y).
The prices of lemon soda (P_X) and chips (P_Y) are $2 and $4 respectively.

a. Solve for her optimal consumption bundle of lemon soda (X*) and chips (Y*)?

i. Optimal Consumption in lemon soda (X*) :

ii. Optimal Consumption in chips (Y*) :

b. Suppose the price of lemon soda (X) increases to $8, what is the new optimal bundle?

i. Optimal Consumption in lemon soda (X*) :

ii. Optimal Consumption in chips (Y*) :

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