Question

1. Jason has $60 and wants to spend all his money on bread(X) and ham(Y) for lunch. As we know, he tends to consume 3 units of bread with every 2 units of ham. Suppose the price of goods are $2(X) and $7(Y) respectively. A. Write down Jason's utility function and budget constraint. B. Calculate Jason's optimal point. C. Show the optimal point in graph.

Answer 1

Answer A)

As it is given that 3 units of bread is consumed with 2 units of Ham.

So, we can write the function as:

min(Y, (2/3)X) ......eq(1)

where,

Y = Ham

X = Bread

So, from eq(1) we can write that:

Y = (2/3)X ...eq(2)

  

Budget Constraint is given as:

P_xX + P_YY = M

(Answer B.)

Substituting the values from eq(2) in the budget constraint gives:

2x + (14X/3) = 60

20x = 180

X = Bread = 9 units

Y = Ham = 6 units

So, the optimal consumption point is (9, 6)

(Answer C.)

8.6 IC 30 Bread Ham