Answer to Question #101720 in Microeconomics for kelbesa Gemechu

Question

1. Suppose that the total utility function of a consumer is given by TU(x,y) = 6XY, and the prices of X and Y are 1 birr and 2 birr per unit, respectively. If the income of the consumer is birr 600 birr and if he/she spends all of his/her income on the consumption of commodities of X and Y, find the optimum amount of X and Y that the consumer will consume at equilibrium.

Answer 1

TU(x,y)=6XY, prices are Px= 1birr and Py=2birr and income =600birr

$Budget line=Px/PY$ =1/2

$TU=6*1*2$ =12

Amount of goods bought is 600/12 =50 units

The amount of each commodity is;

X=17 units

Y=33 units