Arnold consumes two goods x and y.His preferences over alternative consumption bundles can be expressed by the utility function:

U(x,y) = xy

Such that MUx = Y and MUy = x

Given his income I = 200 and prices (px, py) = (4, 2), Arnold maximizes his utility from consumption of goods x and y.

a.Determine Arnold's utility maximizing consumption bundle (x*,y*).Remember that MRS = Px/Py.

b.The government considers subsidizing Arnold's consumption of good x.In particular, the government considers a subsidy s that halves the price paid by Arnold per unit if x consumed.Determine Arnold's optimal consumption bundle (x_s, y_s) conditional on the subsidy having been implemented.