Consider the problem of a consumer who must choose between two typesof goods, good 1 (₁) and good 2 (2) costing respectively p₁ and p2 perunit. He is endowed with an income m and has a utility function u defined byu(x₁, x₂) = √√√x₁ + x₂. 4. By how much and in what direction will the utility function change if theincome changes by 1 unit?5. Find the optimal amounts of good 1 and good 2 the consumer will chooseas well as the maximum utility she will get if p₁ = 2, P24 and m =100.=

Utility function: u(x1, x2) = x1 + x2 Marginal Rate of substitution = dudx1dudx2= 12x11 Price of…

Consider the problem of a consumer who must choose between two types of goods, good 1 (x₁) and good 2 (x2) costing respectively p₁ and p2 per unit. He is endowed with an income m and has a utility function u defined by u(x₁, x₂)=√√x₁ + x₂.

Consider the problem of a consumer who must choose between two types of goods, good 1 (x₁) and good 2 (x2) costing respectively p₁ and p2 per unit. He is endowed with an income m and has a utility function u defined by u(x₁, x₂)=√√x₁ + x₂.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.8P

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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

Consider the problem of a consumer who must choose between two types
of goods, good 1 (₁) and good 2 (2) costing respectively p₁ and p2 per
unit. He is endowed with an income m and has a utility function u defined by
u(x₁, x₂) = √√√x₁ + x₂.

4. By how much and in what direction will the utility function change if the
income changes by 1 unit?
5. Find the optimal amounts of good 1 and good 2 the consumer will choose
as well as the maximum utility she will get if p₁ = 2, P2
4 and m =
100.
=

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