Question: Consider the utility maximization problem subject to a budget constraint: max (2.xy+8 x) s.t. 2. x+y=D40 (x, y are nonnegative). (a) Solve the problem

Consider the utility maximization problem subject to a budget constraint: max (2.xy+8

Consider the utility maximization problem subject to a budget constraint: max (2.xy+8 x) s.t. 2. x+y=D40 (x, y are nonnegative). (a) Solve the problem above, i.e. find the best combination of goods x and y that the consumer should choose. (b) Use the 2d-order conditions to show that the combination found in part (a) is indeed optimal. (c) Suppose the income decreases from 40 to 39.5. Estimate the effect of this on the utility level of the consumer.

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