Tom is a consumer with preferences over two goods represented by the quasilinear utility function u(x, y) = 2x¹/² + y. a) Assume Tom has an income of I = $120 to spend on both goods. The price of good x is Px = $2 and the price of good y is py = $4. Mathematically, solve his UMP to find his optimal bundle. b) Suppose Tom wants to increase his level of utility by optimally purchasing a bundle containing 20 more units of y than the units you found in part (a), how much more income does he need to be able to afford this new bundle if prices of the goods keep the same?
Tom is a consumer with preferences over two goods represented by the quasilinear utility function u(x, y) = 2x¹/² + y. a) Assume Tom has an income of I = $120 to spend on both goods. The price of good x is Px = $2 and the price of good y is py = $4. Mathematically, solve his UMP to find his optimal bundle. b) Suppose Tom wants to increase his level of utility by optimally purchasing a bundle containing 20 more units of y than the units you found in part (a), how much more income does he need to be able to afford this new bundle if prices of the goods keep the same?
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 11SQ
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Transcribed Image Text:Tom is a consumer with preferences over two goods represented by the
2x¹/2 + y.
quasilinear utility function u(x, y)
=
a) Assume Tom has an income of 1 = $120 to spend on both goods. The price of good x is
Px = $2 and the price of good y is py = $4. Mathematically, solve his UMP to find his
optimal bundle.
b) Suppose Tom wants to increase his level of utility by optimally purchasing a bundle
containing 20 more units of y than the units you found in part (a), how much more income
does he need to be able to afford this new bundle if prices of the goods keep the same?
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