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A consumer purchases two goods, x and y and has utility function U(x; y) = x y. For this utility function MUx=y and MUy= x.
A consumer purchases two goods, x and y and has utility function U(x; y) = x y. For this utility function MUx=y and MUy= x. The price of x is px= 2 and the price of y is py= 4. The consumer has M units of income to spend on the two goods and wishes to maximize utility, given the budget.
Show that for M=100 units of income, the combination x=20, y=15 is affordable, but that it is not the best possible combination for this consumer. (Hint: compare the MRS with the price ratio.)
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