Charlie consumes apples and bananas. His utility function is $\mathbf{U}\left(X_{A}, X_{B}\right) =x_{A} x^{2} B$
-refer to scenario above, Charlie's utility function is x_Ax_B.The price of apples used to be $1 per unit, and the price of bananas $2 per unit.His income was $40 per day.If the price of apples increased to $2.25 and the price of bananas fell to $1.75, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of

Question

Charlie consumes apples and bananas. His utility function is

\mathbf{U}\left(X_{A}, X_{B}\right) =x_{A} x^{2} B

-refer to scenario above, Charlie's utility function is x_Ax_B.The price of apples used to be $1 per unit, and the price of bananas $2 per unit.His income was $40 per day.If the price of apples increased to $2.25 and the price of bananas fell to $1.75, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of

Quizplus · Accepted Answer

Charlie's old bundle cost was $40. To afford the same bundle with new prices, calculate: $1 \times x_A + 2 \times x_B = 40$. With new prices, $2.25 \times x_A + 1.75 \times x_B$. Solving gives $62.50.

Charlie Consumes Apples and Bananas U(XA,XB)=xAx2B \mathbf{U}\left(X_{A}, X_{B}\right)=x_{A} x^{2} B U(XA​,XB​)=xA​x2B

Charlie Consumes Apples and Bananas $\mathbf{U}\left(X_{A}, X_{B}\right)=x_{A} x^{2} B$