A consumer has the utility function:
u(x,y) = x*y
his initial budget constraint is: 12 = 2x+ 1y. He has a budget of $12 for the whole question, which has to be completely used.
so that he consumes 3 x and 6 y.
Now he gets a quantity discount: the first two units of x cost $ 2 and every additional unit costs $1.
How much x and y does he consume now?
I’ve already posted the question on Chegg several times and always got a different answer. Please help me.
My thought: the consumption if y doenst depend on the price of x, so he keeps consuming 6y. That means he has $10 left for x. The first two untits cost $2. So 6-2*2= 2, because half of his budget is used for x. So he can buy 2+2 units of x.
textbook solution: He consumes 5x and 5y, because if he consumes more than 2x his budget constraint is 10 = x + y. (why 10? not 8?)