If cheesecakes x1 and cookies x2 are perfect substitutes for the consumer whose utility function is U(x1,x2) = x1 + x2

Finance Jan 08, 2021

If cheesecakes x1 and cookies x2 are perfect substitutes for the consumer whose utility function is U(x1,x2) = x1 + x2. With income equal to $160, the price of one cheesecake is $10 and the price of one cookie is $8, how many cheesecakes will the consumer purchase?

Expert Solution

The Objective of any consumer is to maximise the Utility function

Since they are perfect substitute the utility from botht the cheesecakes and cookies will be equal, but the price of Cheesecakes is higher which means he can increase the utility by increasing the consumption of Cookie.

Number of Cheesecakes consumed = 0

Number of Cookies consumed

= 160/8

= 20

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