Answer to Question #166427 in Economics for Aminah Agbaje

Question

Given two commodities A and B, where price of A is ₦50 and the price of B is ₦60. If the consumer’s income is ₦1200 and the utility function U = AB, Find: i. the equilibrium values of the two commodities. ii. Mention four properties of the demand function derived in (i) above

Answer 1

$$p_A=50$$

$$p_B=60$$

$$I=1200$$

$$U=AB$$

$$MU_A=B$$

$$MU_B=A$$

$$50A+60B=1200$$

$$\frac{B}{50}=\frac{A}{60}$$

$$B=\frac{5}{6}A$$

$$A=12$$

$$B=10$$