1.)The utility function of consumers is represented as U = 10X°SY°.2 with X and Y as two outputs in theconsumer's basket. Marginal utility from output X is MU, = 5X°5Y0² while marginal utility from output Yis MUy = 2X°SY°o, Consumer's income is 100,000 while the prices of output is given as Px = 1 while Py =2. Use the information provided in this item to answer the following questions.i.)What is the consumer optimal condition (MRS = MU, / MU, = Px/ Py )for the consumer? Whatis the relevance of this optimal condition for the consumer?ii.)What will be the optimal combination of output X and Y given that consumer's income is100,000 and the price of output X is Px = 1 while that of output Y is Py = 2?iii.)A price ceiling was imposed on output Y such that P,' = 1. What will be the new consumeroptimal condition given this change in the price of output Y?%3Div.)What will be the new optimal combination of outputs X and Y given the change in the priceof output Y? Do you agree that the imposition of a price ceiling will increase quantity demandedfor output Y? Answer yes or no but justify your answer using the information provided in thisitem.

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1.)The utility function of consumers is represented as U = 10X°>Y°

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter21: Demand: Consumer Choic

Section: Chapter Questions

Problem 1E

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

1.)The utility function of consumers is represented as U = 10X°SY°.2 with X and Y as two outputs in the
consumer's basket. Marginal utility from output X is MU, = 5X°5Y0² while marginal utility from output Y
is MUy = 2X°SY°o, Consumer's income is 100,000 while the prices of output is given as Px = 1 while Py =
2. Use the information provided in this item to answer the following questions.
i.)What is the consumer optimal condition (MRS = MU, / MU, = Px/ Py )for the consumer? What
is the relevance of this optimal condition for the consumer?
ii.)What will be the optimal combination of output X and Y given that consumer's income is
100,000 and the price of output X is Px = 1 while that of output Y is Py = 2?
iii.)A price ceiling was imposed on output Y such that P,' = 1. What will be the new consumer
optimal condition given this change in the price of output Y?
%3D
iv.)What will be the new optimal combination of outputs X and Y given the change in the price
of output Y? Do you agree that the imposition of a price ceiling will increase quantity demanded
for output Y? Answer yes or no but justify your answer using the information provided in this
item.

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