ECON 212 Quiz: ECON 212quizQuiz3-Section02-Sol-050315-1
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Econ 212 - microeconomic theory i - winter 2015 - section 2 - quiz 3 - suggested solution. Question 1 (10 marks) mo farah"s utility function is u(x, y) = x2y. He has income m = 240 and faces prices px = and py = : (4 marks) determine mo farah"s optimal basket given these prices and his income. Solution: the maximization problem is given by max x,y x2y subject to: 8x + 2y = 240 8x + 2(2x) = 240 12x = 240 x = 20. Solution: now, the maximization problem is given by max x,y x2y subject to: pxx + 8y = 240. Using the budget constraint pxx + 8y = 240 16y + 8y = 240 24y = 240 y = 10. From 1) we have that u(20, 40) = 16, 000. To be exactly well o as before, we require that. 20 = 16, 000 p2 x = 16 px = 16 = 4.
