Think about a utility function U(x,y) =xy, the budget constraint is px*x +py*y= m. m = 8, px=1, py=4. a. What is his optimal consumption? b. What is his maximum utility level? Now px has increased to 2. c. Based on expenditure function, after the price change, how much should be compensated to maintain his original utility level?

Think about a utility function U(x,y) =xy, the budget constraint is pxx +pyy= m. m = 8, px=1, py=4. a. What is his optimal consumption? b. What is his maximum utility level? Now px has increased to 2. c. Based on expenditure function, after the price change, how much should be compensated to maintain his original utility level?

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 16SQ

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1. Think about a utility function U(x,y) =xy, the budget constraint is px*x +py*y= m. A. Please derive the expenditure function. If originally m = 8, px=1, py=4. Now px has increased to 2. B. Based on (A), after the price change, how much should be compensated to maintain his original utility level? C. Use the Shaphard's Lemma to derive the Hicksian demand functions.
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Q6) Utility Ratio and Consumption Maximization A consumer downloads 3 movies and 4 apps per week. Suppose the price is $2 per movie and $2 per app, and the marginal utility for this consumption level is 6 for a movie and 8 for an app. Instructions: Round your responses to one decimal place. a. Calculate, show the formula, marginal utility per dollar. ..Per movie ......Per app b. Is this optimal consumption? c. If not, how should they change their consumption to maximize?
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True/False Marginal utility keeps falling with the each additional consumption of a good or service.
7. Suppose U = x₁x2 and the budget constraint is given as x₁ + 1 = B, solve for x and 1-α 8. Suppose U = xx and our budget is given as p₁x₁+P2x2 = m, where m is our income. Solve for solve for x and x₂. 9. Suppose now we want to minimize our expenditure while achieving a certain amount of utility. So say our budget is given as P₁x₁ + P2x2, which we want to minimize, while our utility x and x = u, where u is the level of utility we would like to achieve. Solve for x and x₂.
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