Question

Suppose x represents weekly meat consumption and y represents weekly vegetables consumption. Their prices are px...

Suppose x represents weekly meat consumption and y represents weekly vegetables consumption. Their prices are px and py. Paul’s utility function is U1(x,y) = x2y3 and Peter’s utility function is U2(x,y) = 2x + 3y.

a. Derive the utility level for both at the bundle (4,4) respectively. Does one enjoy the bundle (4,4) more than the other?

b. If the meat price px = 5, vegetables price py = 1, and each of them has a budget of 100. What are the optimal consumption of meat and vegetables for Paul and Peter respectively? Show detailed derivation.

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Homework Answers

Answer #1

(a) Just put the bundle into the utility function of paul and peter. From that, we will get to know who is enjoy better at bundle (4,4).

(b) Paul's utility is a Cobb Douglas. The demand function is

Put the values mentioned in the question.

Peters's utility function is Perfect substitutes. Here Px>Py so he will consume all of Vegetables.

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