Question

In: Economics

Consider the utility function of a consumer who obtains utility from consuming only two goods, ?1...

Consider the utility function of a consumer who obtains utility from consuming only two goods, ?1 and ?2 , in fixed proportions. Specifically, the utility of the consumer requires the consumption of two units of ?2 for each unit of ?1. A.

i. Report the mathematical expression of the utility function of the consumer.

ii. Provide a diagram of the corresponding indifference curves.

iii. Provide at least one example and economic intuition.

Suppose that the consumer has available income equal to Y, and the price of the goods is respectively ?1 and ?2. B.

i. Derive the expressions of the quantities that maximise the utility of the consumer under the budget constraint.

ii. Provide a diagram of the optimal solution.

Solutions

Expert Solution

The mathematical expression is minimum function. And since X2 is consumed twice of X1 the function is Minimum of X1 and X2/2 where X1 and X2 are the quantities of good 1 and good 2 consumed respectively.


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