[Management Economics] One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M...

[Management Economics]

One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M .

(Px,Py,M)=(4,2,24).

(1) Explain the meaning of Px/Py=2

(2) Draw a budget line.

(3) Draw an indiscriminate curve that conforms to a given utility function.

(4) Find the optimal consumption (X*,Y*)

(5) Calculate the income elasticity of demand for X goods.

Expert Solution

Rahul Sunny answered 1 year ago

One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M. (Px,Py,M)=(4,2,24). (1)...

One reasonable consumer is choosing to maximize U(X,Y)=XY under a budget constraint of PxX+PyY=M. (Px,Py,M)=(4,2,24). (1) Explain what Px/Py=2 means. (2) Draw a budget line. (3) Draw an indiscriminate curve that conforms to a given utility function. (4) Find the optimal consumption (X*,Y*). (5) Calculate the income elasticity of demand for product X.

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