Ms. V consumes Good X and Good Y. Her utility function is given by U(x, y) = 5xy.

Since U/x =5y and since U/y = 5x, Ms. V's MRS functionis given by MRS(x, y) = y/x.

1. Suppose PX= 1, PY= 1,I= 240. Find Ms. V's utility-maximizing quantities of x and y.
2. Suppose that the government levies a $3 tax on every unit of Good X that Ms. V purchases. Effectively, the price of Good X rises to Px' = 4with the tax, while it is still the case that PY= 1,I= 240.

a) Find Ms. V's new utility-maximizing quantities of x and y. Confirm that this will cost $240.

b) Since Ms. V is paying a $3 tax on every unit of Good X that she buys, what is the total amount of the tax that she is paying on the units of x in part (a) that she chooses to buy. Call this amount $T. Is that T = 90?

c)Calculate the utility that she receives from the purchases made in part (a).