Could you solve Exercise4?
Todd has the following utility function:
U(X,Y) = X*Y
Price and income are Px=5, Py=4, and I= $200
a)find Todd's optimal consumption bundle and utility level at that price level, using the Lagrangian multiplier method. Show your work. Show all curves and points that are relevant to your solution on a carefully drawn labeled graph. Include a legend for the graph.
b)Assume the government decides to impose a tax of $5 per unit of x (so that the new price of good x is $10). What is the new optimal bundle and the new level of utility? You may appeal to the MRS to avoid solving the Lagrangian. Show all relevant curves and points on the same graph as used in part(a). Include a legend for the graph.