A consumer has budgeted a total of K100 to spend on two goods, X and Y. She likes to consume a unit of good X in combination with a unit of good Y.

A consumer has budgeted a total of K100 to spend on two goods, X and Y. She likes to consume a unit of good X in combination with a unit of good Y. Any unit of good X that she cannot consume in combination with a unit of good Y is useless. Similarly, any unit of good Y that she cannot consume in combination with good X is useless. If the price of a unit of good X is K5 and the price of a unit of good Y is K10, how many units of each good will be the consumer purchase?

Solutions

Expert Solution

The optimal bundle is when both goods consumed equally ,
So , X = Y
Budget constraint, XPx + YPy = m
X(5) + Y(10) = 100
X(5) + X(10) = 100. [X = Y]
X(15) = 100
X = 100 / 15
X = 6.67
So, X = Y = 6.67 ~ 7

Rahul Sunny answered 1 year ago

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