Molly's utility function is U(x, y) = y + 4x^.5. She has 25 units of x and 12 units of y. If her consumption of x is reduced to 0, how many units of y would she need in order to be exactly as well off as before? A) 48 B) 37 C) 32 D) 112 E) None of the above.

Question

Quizplus · Accepted Answer

To solve the problem, we need to find the level of y that would give Molly the same level of utility she had before consuming any x.

We can do this by setting the initial utility U(x=25, y=12) equal to the utility Molly would receive with x=0:

U(x=0, y=y*) = y* + 4(0)^1.5(S1)^1(P0)

Simplifying, we get:

U(x=25, y=12) = y*

Substituting the values:

12 + 4(25)^1.5(S1)^1(P0) = y*

Solving for y*, we get:

y* = 32

Therefore, if Molly consumes 0 units of x, she would need 32 units of y to be exactly as well off as before.

Molly's Utility Function Is U(x, Y) = Y + 4x