Re: Problem Code: 060609MICRO

Posted by Amit Goyal on
URL: http://discussion-forum.276.s1.nabble.com/Problem-Code-060609MICRO-tp3035451p3037791.html

We need two conditions for x = 1 to be chosen definitely
i) Affordability: 1 unit of x should be affordable. i.e. p(x)(1) ≤ M
ii) Optimality: Spending on 1 unit of x should give you higher utility then not spending anything on it. Hence, we compare the two situations:
Spending on 1 unit of x and remaining money on y will give you utility = u(1) + (M - p(x))/p(y)
Spending everything on y will give utility = M/p(y)
i.e. u(1) + (M - p(x))  >  M   (Since p(y) =1)
Combining i) and ii),
p(x) < u(1) and p(x) ≤ M