Answer to Question #144172 in Microeconomics for mary

Question

Your utility function for apples and bananas is U(A,B) = A4 B4 , where pA = pB = 1 (in £

per unit) initially.

1. (a) If your exogenous income is m = 100 (in £), then find the optimal consumption of apples and bananas, A∗ and B∗, respectively, as well as the maximised level of utility,U(A∗,B∗).
2. (b) If now p′A = 2, then find the new optimal consumption bundle, (A∗∗, B∗∗), along with the maximised utility level, U(A∗∗,B∗∗).
3. (c) How much should income be increased by in part (b) so that the maximised utility level of part (a) is just attainable?

Answer 1

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