Question

Clayton's utility function can be written as x0.751x0.252, where x1 is the quantity of hamburgers consumed and x2 is the quantity of milk shakes. His income is $2,000.00.

Hamburgers cost $8.00 each and the price of one milk shake is $4.00. If he is maximizing his utility, how much will Clayton spend on hamburgers? $

The price of hamburgers decreases to $7.37 each. Now, how much will Clayton spend on hamburgers if he is maximizing his utility?

Answer 1

Budget coustrand of clayton Proxy + Pof Iz = m >> goep † 442 = 2000 >) 10/22, +92-500] The ofhmal Condeton be MRS = Mix - 0 muy 1. Muda Par a su 12 = -:25.25 0.75 X 7 02520,75 00 - 8 4 2 » 3 h = 2 put 12 = 221 in eque ③ we hel 22, +1, = 500 7/24,7281 = 500 > 1, 189-57 : P = 2 * *3 = 1975) > F=125)

to mary his uhlity, the Ant she on humburgers - Proof & Arount of - hamburger quantity = $8 x 187.5 - $ 1500 2 # price decreases p=$7•37 New Budget line -① • T7.377, + 472 = 2000 ofrimal Condition be MRS = MUA I MRS muy ry → 322. 7.37 T?2= 7037 12 12 fut l2 = 7-3774 in eau ③ we Gel- 7.394 +4 (7-3331) = 2000 = 77, 203:54 Amount spend on humburgess = Pxa - 7.37 X 203:54 $ 1500 Рекомо La $ 1500 бу соо