Question

Consider the following utility maximization problem, in which the utility function of the consumer is given by:
 

U(x, y) = x^{0.5}y^{0.5}


The consumer income is I = 100, and p_x = 2 and p_y = 3. Find the utility-maximizing x and y when the budget constraint of the consumer may or may not bind. (Apply Kuhn-Tucker method).

11 Jan 2025
Answer :
Word Count : 783

In this problem, the consumer aims to maximize their utility function subject to a budget constraint. The utility function is given as \( U(x, y) = x^{0.5} y^{0.5} \), where \( x \) and \( y \) are the quantities of two goods consumed. The consumer's income is \( I = 100 \), and the prices of the goods are \( p_x = 2 \) for good \( x \) and \( p_y = 3 \) for good \( y \).

The budget constraint is given by the equation \( p_x x + p_y y = I \), or in this case, \( 2x + 3y = 100 \). The task is to determine the values of \( x \) and \( y \) that maximize the consumer's utility subject ____ ________ _______ _____ _______.
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