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. Suppose your utility depends on two goods: x and y. The utility function is u(x,...

. Suppose your utility depends on two goods: x and y. The utility function is u(x, y) = ln(x) + ln(y) . Suppose you have an income of $800. Further, assume that the price of x is 8 and the price of y is 10.

Write down the equation for the budget constraint. Compute the marginal rate of subsitution between x and y. • Compute the utility maximizing combination of x and y. •

Suppose your income increases to $1000 with no change in prices. What will be the new utility maximizing combination of x and y. Are both goods normal goods?

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