Question

1.) Liz has utility given by u(x2,x1)=x1^7x2^8. If P1=$10, P2=$20, and I = $150, find Liz’s optimal consumption of good 1. (Hint: you can use the 5 step method or one of the demand functions derived in class to find the answer).

2.) Using the information from question 1, find Liz’s optimal consumption of good 2

3.) Lyndsay has utility given by u(x2,x1)=min{x1/3,x2/7}. If P1=$1, P2=$1, and I=$10, find

Lyndsay’s optimal consumption of good 1. (Hint: this is Leontief utility).

4.) Using the information from question 3, find Lyndsay’s optimal consumption of good 2

5.) Anya has utility given by u(x2,x1)=18x1+9x2. If P1=$5, P2=$2, and I=$20, find Anya’s optimal consumption of

good 1. (Hint: this is linear utility).

6.) Using the information from question 5, find Anya’s optimal consumption of good 2

Answer 1