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Manu Wants to Achieve a Utility Level of 100

Question 89

Essay

Manu wants to achieve a utility level of 100. His utility function is U = XY, where MUX = Y and MUY = X. What is the least amount of money (M) that Manu can spend to achieve a utility level of 100? Manu's budget constraint is M = 8X + 2Y.

Correct Answer:

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MRS = 8/2
Y/X = 8/2
Y = 4X (pl...

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