Suppose firm T’s utility function is: U(X,Y) = X0.4Y0.6. The firm has a budget of $100,...

Suppose firm T’s utility function is: U(X,Y) = X0.4Y0.6. The firm has a budget of $100, and the price of material Y is $20 and the price of X is $10. a) What is the optimal combination of inputs of X and Y for this firm? b) Suppose the price of Y and X are now $10 and $20, respectively. What effect will this have on the firm’s optimal input combination? c) Illustrate the answers to the preceding questions with the use of isoquant/isocost diagram.

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Rahul Sunny answered 10 months ago

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