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Calculate the marginal utility of x

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Reference no: EM132951489

Suppose that the price of good X is $1.50 and the price of good Y is $3. You have $45 to spend and your preferences over X and Y are defined as: U(x,y) = x1/3y2/3

Keep in mind that we review this concept because consumer choice is based on their preferences. People demand items that fulfill their Utility (perhaps happiness). As a result, we need to visualize how an individual's budget is allocated to create the highest level of Utility.

a. Calculate the marginal utility of X (remember, this is the change in utility resulting from a slight increase in consumption of X). Calculate the Marginal Utility of Y

b. What is the optimal Choice of X and Y given the PX = $1.50, PY = $3 and I = $45. This answer requires a numerical answer. If you use a spreadsheet, please submit the spreadsheet; if you derive the answer, please show your work.
£(X,Y) = x1/3y2/3 + λ(45 - 1.50X - 3Y)-this is a hint. If Income is decreased to $81 (I1 = $81) calculate and show your work on how the optimal choice of X and Y change.

Note that we would not change the utility function (only the income constraint changed)

c. At an income of $81 and the price of good X is $1.50 and the price of good Y is $3, what is the total utility achieved given the Utility Function.

Reference no: EM132951489

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