About the utility maximization

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4 Utility Maximization

Sally the Sleek’s preferences can be described by the utility function U(x,y) = x2y3/512. Prices arepx =2andpy=6;shehasanincomeof$80tospend.

(a) If Sally initially consumed 4 units of x and 12 units of y, how much additional utility does she get from spending one (small fraction of a) dollar more on good x? How much additional utility does she get from spending one (small fraction of a) dollar more on good y?

(b) By how much would her utility change if she stayed on the same budget and consumed 4 (“small”) dollars worth more of x? Judging from this, can the allocation of x = 4 and y = 12 be optimal?

Reference no: EM131244309

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