Question

1.      Company consumes two goods X and Y, her utility function is given by the equation

U= 60XY².The current market price for X is 200 birr, while the market price for y is 100birr and her current Income is 10,000birr

A.     Sketch a set of two Indifferent curves for Company in her consumption of X and Y 

B.     Write the expression for Company's budget constraint graph the budget constraint and find the slope

C.     Determine the X, Y combination that maximizes her utility given her budget constraint

Calculate the Impact on Company's optimum consumption of X and Y If the price of X increase to 300birr.

Answer 1

$$200x+100y=10,000$$

$$MU_x=60y^2$$

$$MU_y=120xy$$

$$y=4x$$

$$x=17$$

$$y=68$$

If price of good X will be 300, then

$$x=11$$

$$y=66$$