# Marginal utility and demand

Question:

a) Johnny consumes peanuts (x1) and a composite good (x2). His utility function is U = x1x2. His marginal utilities are MU1 = x2 and MU2 = x1. Johnny’s budget is \$20 and the price of the composite good is \$1. Derive Johnny’s demand function for peanuts.

b) Ambrose consumes peanuts (x1) and a composite good (x2).He has a utility functionU = 4 x1 + x2. This means his MU1 = 2/x1 and his MU2 = 1 . The price of the composite good is p2 = 1. His budget is \$20 per month. Derive Ambrose’s demand function for peanuts. How does it compare with Johnny’s demand curve for peanuts?

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