Question #301671

The utility function for a consumer utility is U=30Q1^½Q2^½. if the price per unit of Q1 is ksh 10 and ksh 5 per unit of Q2, determine quantities Q1 and Q2 that the consumer should have ti maximize utility if the consumer budgeted kdh 350

1
Expert's answer
2022-02-28T11:03:03-0500

Solution:

Max U=30Q1Q2U=30Q_{1}Q_{2}

S.t 10Q1+5Q2=35010Q_{1} +5Q_{2} = 350

Q1,Q20Q1, Q2 ≥0

At equilibrium:

MU1/MU2=P1/P2MU_{1}/MU_{2}=P_{1}/P_{2}

15(Q2/Q1)1/2/15(Q1/Q2)1/2=10/15{15(Q_{2}/Q_{1})^1/2/15(Q_{1}/Q_{2})^1/2}= 10/15

Q2/Q1=2Q_{2}/Q_{1}=2

Q2=2Q1Q_{2}= 2Q_{1}

From the budget:

10Q1+5Q2=35010Q_{1} +5Q_{2} = 350

10Q1+2Q1=35010Q_{1} + 2Q_{1} = 350

20Q1=35020Q_{1}= 350

Q1=17.5Q_{1}= 17.5

Q2=35Q_{2}= 35



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