Question #109224

a) If you have Cobb Douglas utility function ……………………………….. ( 7 marks)

U: U (x. y) = x0.5 y0.5

Assume that the consumer is able to spend $40 on goods b, and c. where Px = 1, and Py= 2. Find the maximum quantities of b, and c the consumer can afford to buy and give him the highest utility.

U: U (x. y) = x0.5 y0.5

Assume that the consumer is able to spend $40 on goods b, and c. where Px = 1, and Py= 2. Find the maximum quantities of b, and c the consumer can afford to buy and give him the highest utility.

Expert's answer

Solution:

"p_xq_x+p_yq_y=40"

"2y+2y=40"

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