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Question 2 [15 marks] Vicky maintains her satisfaction by consuming two goods weekly: X and Y. Her utility function is given as U(x, y) =
Question 2 [15 marks] Vicky maintains her satisfaction by consuming two goods weekly: X and Y. Her utility function is given as U(x, y) = 2xy; x > 0, y > 0 , where x represents the amount of good X and y represents the amount of good Y. She has a weekly income of $72. The price of good X $9 per unit, and the price of good Y is $1 per unit. (a) Write an equation for Vicky's budget line. [1 mark] (b) Find Vicky's marginal utility of consuming an additional unit of good X and the marginal utility of consuming an additional unit of good Y. [1 marks] (c) Find Vicky's optimal consumption bundle and determine the amount of satisfaction she is deriving from that optimal consumption bundle. Show your answers in a diagram, with among of good X on x-axis and amount of good Y on y-axis. Label your diagram fully. [6 marks] (d) Assuming now that the price of good X falls by $5 per unit. Comment how this change affect Vicky's optimal bundle and her satisfaction level. Also, show all the changes in a diagram and show all your workings clearly. Remember to label your diagram fully. [7 marks]
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