Question

Doreen has preferences represented by the utility function U(x, y) = 10x + 5y. She consumes 10 units of good x and 12 units of good y. If her consumption of good x is lowered to 1, how many units of y must she have in order to be exactly as well off as before?

Answer 1

Answer: Good Y = 14

Explanation:

utility function

U(x,y) = Utility  

Good X = 10

Good Y = 12

U(x,y)= 10x + 5y

U(x,y) =10(10) + 5(12)

U(x,y) = 160

when good a drops by 1 Good X will 9  

160 = 10(90) + 5y

5y + 10(90) = 160

5y = 160 - 90

5y = 70

y = 14

When Good X is lowered by 1 to maintain the level of 160 utility Good Y must be 14