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Oyuki's preferences over swords

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Oyuki's preferences over swords (good X) and all other consumption (good Y) are given by
U(X, Y ) = XY.
Her income is $16, the price of a sword is $2 and the price of the composite good is $1.

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Oyuki's preferences over swords are analyzed. The price of the composite goods are determined.

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2. Oyuki's preferences over swords (good X) and all other consumption (good Y )
are given by U(X, Y ) = XY.
Her income is $16, the price of a sword is $2 and the price of the composite good is $1.

(a) Find Oyuki's optimal consumption bundle (X*, Y *)

Let Marginal Utility of X = Mx and Marginal Utility of Y = My

The optimal consumption bundle is derived from two conditions:
MUx/ MUy =Px/Py and x*Px + y*Py = Total Income

MUx = y and MUy = x

Therefore from ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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