Answer to Question #284639 in Economics for Melak

Question

A consumer purchases two goods, food and clothing. The utility function is U=FC where

F denotes the amount of food consumed and C the amount of clothing. The price of food

is PF=2,000 Birr, the price of clothing is PC=4,000 Birr, and the income M=80,000. Find

the equilibrium of this consumer.

Answer 1

In equilibrium MUf/Pf = MUc/Pc and 2,000F + 4,000C = 80,000.

C/2,000 = F/4,000,

F = 2C,

2,000×2C + 4,000C = 80,000,

8,000C = 80,000,

C = 10 units,

F = 20 units.