Russ Tickman is a dairy farmer.He consumes milk and other goods.His utility function is given by U(x, y)= y(x + 1), where x is his milk consumption and y is his consumption of other goods.His initial endowment is 19 units of milk per day and no units of other goods.If the price of milk is $2 and the price of other goods is $1, how much milk does he consume?

Question

Quizplus · Accepted Answer

Russ Tickman's budget constraint is 2x + y = 38 (since he can sell 19 units of milk at $2 each). To maximize utility U(x, y) = y(x + 1), set the marginal rate of substitution equal to the price ratio: (x + 1) = 2. Solving gives x = 9 gallons.

Russ Tickman Is a Dairy Farmer