MRS=y/2x

price of x is $1

price of y is $3

income is $90

how much of each good should be consumed in order to maximize utility

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- Feb 11th 2010, 10:10 AM #1

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- Feb 11th 2010, 02:48 PM #2

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Utility is maximised when $\displaystyle MRS_{y,x}=\frac{P_x}{P_y}$

so $\displaystyle \frac{y}{2x}=\frac{1}{3} \to y=\frac{2}{3}x$ Substituting this into the B.C which is

$\displaystyle M=P_x x+P_y Y$,

$\displaystyle 90=X+3Y=X+2X \to X=\frac{90}{3}=30$

So Y can be calculated using $\displaystyle X=30$ and substituting into the B.C, or solving MRS equal to the price ratio for X.

- Feb 13th 2010, 02:59 AM #3

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