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Determine the optimal consumption level of goods

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Suppose a consumer has a budget of $12 and wishes to buy two goods, Food (F) and Clothing (C). The price for Food is equal to $2 per unit and the price for Clothing is $1 per unit. Find the consumer's optimal consumption basket when he has the following utility function: U(F, C) = F^2C.

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Solution depicts the steps to estimate the optimal consumption basket in the given case.

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In this case, the utility function is given by
U(F,C)=F^2C

The marginal utility of Food (F) can be found by differentiating the utility function with respect to F. Similarly, ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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