Question

A consumer derives utility from goods A and B according to the following utility function: U(A, B) = A1/4B 3/4 . The price of good A is $12 per unit and the price of good B is $9 per unit. The consumer has a total budget of $180. What is the utility maximizing bundle for the consumer?

Answer 1

3.75 units of A, and 15 units of B

Step-by-step explanation:

U(A, B) = A¹/⁴ x B³/⁴

A = $12

B = $9

A' = 1/4 x $180 = 45

B' = 3/4 x $180 = 135

Utility is maximized when $45 is spent in A, meaning that $45 / $12 = 3.75 units are purchased.

Utility is maximized when $135 is spent in B, meaning that $135 / $9 = 15 units are purchased.