Consider an individual with utility of the form: U(x,y) = x 0.75 +5y. The price of good x is p x and the price of
Consider an individual with utility of the form: U(x,y) = x0.75+5y. The price of good x is px and the price of good y is py. The individual faces a budget constraint of M. The marginal utility associated with good x is MUx=0.75x-0.25. The marginal utility associated with good Y is MUy=5.
A)Find the Marshallian demand functions for the individual.
B)Characterize the individual's consumption choice overall levels of M. Hint: There is more than one case to consider.
C)Suppose the individual's budget increases to M', (therefore M'>M). Determine how the individual's choice of consumption will change over the levels of M specified in part B).
Can this utility function give corner and interior solutions? What does this tell you about the non-linear good (x) and the linear good (y)?
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