Answer to Question #65781 in Microeconomics for Anna
The following utility function marks the preferences over two goods;
There is no budget constraint (income is unlimited)
the prices of the two goods are p1=6 and p2 =8
A) What are the optimal quantities of each given good?
U(X1,X2)=X1X2+2X1 There is no budget constraint, p1=6 and p2 =8 A) What are the optimal quantities of each given good? If no budget constraint, quantity of each good bought is decided by: Price = Marginal Utility, P = MU. MU(X1) = U'(X1) = X2 + 2 = p1, so: X2 + 2 = 6, X2 = 4. MU(X2) = U'(X2) = X1 = p2, so: X1 = 8.