Problem
Victor's utility function for goods X and Y is represented by U(X, Y ) = X0.2Y 0.8 . Assume his income is $100 and the prices of X and Y are $10 and $20, respectively.
a. Express his MRS of good Y for good X. As the amount of X relative to the amount of Y along the same IC, does the absolute value of the MRS increase or decrease? Explain.
b. What is his optimal consumption bundle?
c. How will this bundle change when all prices double and income is held constant?
d. Draw the demand curve for good X and the demand curve for good Y assuming income is $100.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.