Suppose that Sally’s preferences over baskets containing petrol (good x), and food (good y), are described by the utility function U(x; y) = xy +…

Suppose that Sally’s preferences over baskets containing petrol (good x), and food (good y), are described by the utility function U(x; y) = xy + 100y. The marginal utilities for this function are,

MUx = y and MUy = x + 100:

Use Px to represent the price of petrol, Py to represent the price of food, and I to represent Sally’s income.

Question 1: Find Sally’s petrol demand function, and Sally’s food demand function. (8 Marks)

Solution:

Petrol demand function, D (Px) = (I – 100Px)/2Px

Food demand function, D (Py) = (I + 100Px)/2Py

can u show the working step by step

 
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