Question

1. An Individual consumes products X and Y and spends 500birr per time period. The prices of the two goods are 60birr per unit for X and 40blrr per unit for Y.The consumer in this case has a utility function expressed as: U(X,Y) = 10XY

A.  Express the budget equation mathematically.

B.  Determine the values of X and Y that will maximize utility in the consumption of X and Y.

C. Determine the total utility that will be generated per unit of time for this individual.

Answer 1

$$MU_x=10y$$

$$MU_y=10x$$

$$y=1.5x$$

$$60x+40y=500$$

$$x=4$$

$$y=6$$

$$TU=240$$