In: Economics
3. Anthony spends his income on xylophones (x) and yo-yos (y). Xylophones are priced at $2 (Px = 2), while a package of yo-yos cost $1 (Py = 1). Assume that Anthony has $40 to spend and his utility function can be represented as U(x, y) = x^0.75y^0.25. For this utility function, MUx = (0.75)y^0.25 /x^0.25 and MUy = (0.25)x^0.75 /y^0.75 . (a) What is the optimal number of xylophones and yo-yos for Anthony to purchase? (b) Suppose the price of a yo-yo increases to Py = 2. What is Anthony’s consumption bundle? (c) Are xylophones and yo-yos complements, substitutes, or neither. You must explain why to receive full credit.