Hello. I have a specific homework question that I have attempted to solve, but haven't had any success yet. The question deals with marginal substitution and utility maximising bundles. I am given the following problem:
Utility function is U(c,w,b)=2*c^2 * w - 4*b^2, where a unit of "c" costs is €2, a unit of "w" is €4, and a unit of "b" is €1. Income is €300/week. Utility function implies that margin utility of "c" is 4cw, marginal utility of 2C^2, and marginal utility of "b" is -8B.
I'm required to find the utility maximising bundle of the three goods, with a hint of "look at the utility function and consider the marginal utility of each good" but I am at a complete loss as to where to turn.
I considered using the relationship: MU of c / price of c = MU of w / price of w = ... etc. but I don't know if that would work.
Can anyone help me? I am certainly struggling with this question.
Turn on thread page Beta
Maximise utility given marginal utilities and utility function watch
- Thread Starter
- 28-09-2011 05:48
- 29-09-2011 01:45
Find when the marginal utilities of each are equal?
- 29-09-2011 02:49
Have you done Lagrangian multipliers yet? You might be able to solve this setting up a Lagrangian.