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Chloe consumes only books (x) and video games (y). Her preferences can be represented by the following utility function: U(x, y) = xy2. The
Chloe consumes only books (x) and video games (y). Her preferences can be represented by the following utility function: U(x, y) = xy2. The price of books is Px, the price of video games is Py, and Chloe has an income of I dollars. a) Write down Chloe's budget constraint. b) Calculate the Marginal Rate of Substitution (at an arbitrary bundle (x, y)). c) Find the equations that describe Chloe's demand for books and her demand for videogames for any possible value of px, Py and I. d) Derive the expenditure on each X and Y. (in terms of Income) e) Now suppose that Chloe's utility function is U(x, y) = (x + 5)y2. What is her demand for books and videogames if I = 15, px = and py = 5? f) Continued from question e. What is Chloe's demand if / = 15, px = 5 and py = 5?
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