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Utility Maximization

The document describes a utility maximization problem where total utility is a function of the amounts of two goods, X and Y, with prices of 4 and 3 respectively. The consumer has $42 to spend. It provides instructions to (1) write the equation for the budget constraint line, (2) determine the slope of that line, (3) derive the marginal utility functions for each good, (4) calculate the slope of the indifference curves, and (5) find the amounts of each good that maximize total utility subject to the budget constraint.

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Edy Sutiarso
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54 views

Utility Maximization

The document describes a utility maximization problem where total utility is a function of the amounts of two goods, X and Y, with prices of 4 and 3 respectively. The consumer has $42 to spend. It provides instructions to (1) write the equation for the budget constraint line, (2) determine the slope of that line, (3) derive the marginal utility functions for each good, (4) calculate the slope of the indifference curves, and (5) find the amounts of each good that maximize total utility subject to the budget constraint.

Uploaded by

Edy Sutiarso
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Utility Maximization

Suppose total utility is TU = 40X + 15Y 2X2 3Y2, where X is the amount of good 1 and Y is
the amount of good 2. The prices of the two goods are 4 and 3, and you have $42. Showing
work clearly, answer the following questions.
a. What is the equation of the line for the budget constraint?

b. What is the slope of the budget constraint?

c. Determine the function for the marginal utility of X.

d. Determine the function for the marginal utility of Y.

e. What is the slope of the indifference curve?

f. How much should you buy of each good to maximize your total utility?

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