1. Assume that Elizabeth has a utility function of U = xy, so that her utility equals the product of the quantities

1. Assume that Elizabeth has a utility function of U = xy, so that her utility equals the product of the quantities of x and y she consumes. Her marginal utilities of the goods x and y are MUx = y and MUy = x, respectively. She tells her friend Miriam that no matter what her income, she always spends an equal amount of it on each good. If the price of good x is px = 2, the price of good y is py = 4, and her income is Birr100, she will buy 25 units of good x and 12.5 units of good y.


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