Question

Max has the utility function U(x, y) = xy + x. The price of x is $2 and the price of y is $1. Max’s Income is $11. How much x does Max demand? How much y?

If his income doubles and prices stay unchanged, will Max’s demand for both goods double?

Answer 1

$$2x+y=11$$

$$MU_x=y+1$$

$$MU_y=x$$

$$y=2x-1$$

$$x=3,y=5$$

If his income doubles and prices stay unchanged, then

$$x=4.6$$

$$y=8.2$$