Ambrose's brother Sebastian has a utility function U(x₁, x₂)= 60x^1/2₁ + x₂.His income is $165, the price of good 1 (nuts)is $6, and the price of good 2 (berries)is $1.How many units of nuts will Sebastian demand? A)25 B)23 C)35 D)21 E)48

Question

Quizplus · Accepted Answer

Sebastian's marginal utility of nuts is 10x₁^-1/2, and his marginal utility of berries is 1. So, he will consume nuts until 10x₁^-1/2 = 1, or x₁ = 100. Since the price of nuts is $6, he will demand 100/6 = 25 units of nuts.

Ambrose's Brother Sebastian Has a Utility Function U(x1, X2)= 60x1/21

Ambrose's Brother Sebastian Has a Utility Function U(x₁, X₂)= 60x^1/2₁