solution

Application exercise. Assume that an indifference curve representing the utility (U) obtained by a consumer when two goods (y and x) are consumed is defined by the implicit utility function U(y, x) = y0.4x 0.6 = 100. Also assume that the consumer’s budget line is represented by the equation pyy+pxx = I, where py = $2 denotes the price of good y, px = $4 denotes the price of good x, and I = $10 000 denotes the income of the consumer. Show the equilibrium of this consumer (assuming that the equilibrium occurs when the slope of the indifference curve is equal to the slope of the budget line).

 
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