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Your utility function is U=10X0.1Y0.7 and your marginal utility functions are Mux=X-0.9Y0.7 and MUy=7X0.1Y-0.3 Your budget is M and the prices of the two goods
Your utility function is U=10X0.1Y0.7 and your marginal utility functions are
Mux=X-0.9Y0.7 and MUy=7X0.1Y-0.3
Your budget is M and the prices of the two goods are Px and Py.
a) Write down the two conditions for utility maximization subject to a budget constraint.
b) Derive the demand functions for X and Y.
c) Based on your demand functions explain whether:
- Y is a normal good or an inferior good and why.
- good X satisfies the law of demand.
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