Determine the optimal consumption bundle. Using the formula M U x P x = M U y P y (1) I have derived the functions: M U x = 2.5 x − 0.5 y 0.5
What is the optimal consumption bundle?
Def: The optimal consumption bundle is the bundle of goods that is both affordable (con-tained in the budget constraint) and the most preferred by the consumer (highest indifference curve). This optimal consumption bundle is the bundle of goods the consumer will choose.
How do you find the optimal consumption bundle for BL2?
Use this equation and the equation for BL2 to find the optimal bundle: Y = 25 – (1/4) (4Y) or Y = 12.5. When Y = 12.5 then x = 50. The individual's level of utility from consuming this consumption bundle is U = XY = (50) (12.5) = 625 units of utility.
What is the optimal consumption rule?
The optimal consumption rule says that when a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle.
How to express the optimal bundle in terms of exogenous factors?
This gives both x and y in terms of exogenous factors. So, all you are doing is equating marginal utilities and also using the budget constraint to express the optimal bundle (optimal amounts of goods x,y) in terms of exogenous factors. Show activity on this post.
What is consumption bundle?
A consumption bundle is a set of goods that a consumer may choose to consume. Similarly, it is asked, what is an optimal bundle? Def: The optimal consumption bundle is the bundle of goods that is both affordable (con- tained in the budget constraint) and the most preferred by the consumer (highest indifference curve).
What is optimal consumption?
The optimal consumption rule says that at the optimal consumption bundle the marginal utility per dollar spent on each good and service—the marginal utility of a good divided by its price— is the same . Secondly, what is a consumption bundle?
