Question: Given utility function U= X1/2Y1/2 where PX = 12 Birr, Birr, PY = 4 Birr and the income of the consumer is, M= 240 Birr.

  1. Given utility function U= X1/2Y1/2 where PX = 12 Birr, Birr, PY = 4 Birr and the income of the consumer is, M= 240 Birr.

A. Find the utility maximizing combinations of X and Y.

B. Calculate marginal rate of substitution of X for Y (MRSX, Y) at equilibrium and interpret your result.

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