Question

7. Suppose you have the following utility function for two goods: u(x1, x2) = x 1/3...

7.
Suppose you have the following utility function for two goods:
u(x1, x2) = x
1/3
1 x
2/3
2
. Suppose your initial income is I, and prices are p1 and p2.

(a) Suppose I = 400, p1 = 2.5, and p2 = 5. Solve for the optimal bundle. Graph the budget
constraint with x1 on the horizontal axis, and the indifference curve for that bundle.
Label all relevant points

(b) Suppose I = 600, p1 = 2.5, and p2 = 4. Solve for the optimal bundle. Graph the budget
constraint with x1 on the horizontal axis, and the indifference curve for that bundle.
Label all relevant points.

Homework Answers

Answer #1

Graph 1)

graph 2)

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