Question #52346

Diogo has a utility function , where A, α and β are constants, B is burritos, and Z is pizzas. If the price of burritos, Pb, is N$2 and the price of pizzas, Pz is N$1, and Y is N$100, what is Diogo’s optimal bundle?

Expert's answer

If Diogo has a utility function U(B, Z) = AB^αZ^β and if the price of burritos, Pb, is N$2 and the price of pizzas, Pz is N$1, and Y is N$100, using the Lagrangian method we can find the optimal bundle:

Qb = β/(α + β)*100/2 = 50β/(α + β)

Qz = 100β/(α + β)

Qb = β/(α + β)*100/2 = 50β/(α + β)

Qz = 100β/(α + β)

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