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Imagine your utility function, UX, X= XY,where X is your consumption of candy bars with price...

Imagine your utility function, UX, X= XY,where X is your consumption of candy bars with price PX=$1 and Y is your consumption of espressos with price PY=$3. Assume that your income I = $100. How many candy bars and how many espressos will you consume?

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Answer #1

Method used and Result :

Here, We In order to calculate amount of candy bars and espressos, we have to calculate X and Y which maximizes Utility(U) = XY subject to Budget Constraint : X + 3Y = 100.

In order to do that we used Legrange Multiplier and First order condition along with Budget Constraint to calculate X and Y. We can see from above that X = 50 and Y = 16.67

Hence, She should Consume candy bars = 50 and Espressos = 16.67

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