Problem Set 2 1. Clara’s utility function is U(X,Y) = (X+2) (Y+1), where X is her consumption of good X and Y is her consumption of good Y. a. Write an equation for Clara’s utility indifference curve that goes through the point (X,Y) = (2,8). b. Suppose the price of each good is 1 and that Clara has an income of 11. Write an equation for Clara’s budget constraint. Can Clara achieve a utility of 36 with this budget? c. With a budget equation given by (b), what utility maximizing bundle will Clara choose? 2. Allan has a utility function U(x 1 , x 2 ) = 4 √x 1 + x 2 , where x 1 is the consumption of nuts and x 2 is the consumption of berries. a. What utility does the commodity bundle (25,0) give him? b. Suppose that the price of a unit of nuts is 1, the price of a unit of berries is 2, and Allan’s income is 24. How many units of nuts does he choose to buy? How many units of berries? c.
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