Question:
a) Johnny consumes peanuts (x1) and a composite good (x2). His utility function is U = x1x2. His marginal utilities are MU1 = x2and MU2 = x1. Johnny's budget is $20 and the price of the composite good is $1. Derive Johnny's demand function for peanuts.
b) Ambrose consumes peanuts (x1) and a composite good (x2).He has a utility functionU = 4 x1 + x2. This means his MU1 = 2/√x1and his MU2 = 1 . The price of the composite good is p2 = 1. His budget is $20 per month. Derive Ambrose's demand function for peanuts. How does it compare with Johnny's demand curve for peanuts?
Additional Information:
The question is belongs to economics and it is derive Johnny and Ambrose's demand function for peanuts and how does Ambrose's demand function for peanuts compare with Johnny's demand curve for peanuts?