Utility Maximization. Suppose that an individual has a utility function given as U =√XY where U is the total utility, X is the quantity of good X that is consumed, and Y is the quantity ofgood Y consumed. It follows that MUx MUy= X/Y where MUx is the marginal utility of X and MUy is the marginal utility of Y. The individual’s budget constraint is I = PxX + PyY where I is income, Px is the price of good X, and Py is the price of good Y. Suppose that Px = 2, Py = 1, and I = 100. How much of X and Y does this individual purchase?

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A:

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Revealed Preferences and Budget Constraint Analysis

Revealed means “Let Out,” and Preference means “Choice”; Choice Reveals Preference.