13. The utility function of consumers who spend both their income and buy X and Y...

13. The utility function of consumers who spend both their income and buy X and Y goods was given U=XY. (U is the size of utility, X is the consumption of X material, Y is the consumption of Y goods) The consumer's income is 100, and the prices of X and Y goods are initially 2 and 10. If the price of X material rises from 2 to 8, what is the compensation income for this change (the minimum income that achieves the same utility level as before)?

Expert Solution

The optimal bundle is found when we equate, marginal rate of substitution to the slope of the budget line. The compensation Income is 200 in this scenario to maintain the same level of utility. The working is shown below.

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Rahul Sunny answered 9 months ago

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