Jane's utility function is represented as: U = F0.5 C0.5, F is quantity of food and...
Jane's utility function is represented as: U = F0.5 C0.5, F is quantity of food and C is quantity of clothing. If her budget constraint is represented as: 125 = 2F + 4C, her optimal bundle of consumption contains how many units of clothing?
the answer is 15.6250 please show steps
Homework Answers
For optimal consumption/utility maximization:
MUf/Pf = MUc/Pc
MUf = dU/dF = 0.5C0.5/F0.5
MUc = dU/dC= 0.5F0.5/C0.5
Pf = 2 , Pc = 4
Therefore, MUf/Pf = MUc/Pc would yield:
C/F = 1/2
Replacing F = 2C in the budget constraint:
125 = 2C x 2 + 4C
C = 125/8 = 15.625
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Jane's utility function is represented as: U = F0.5
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