Additional Information on Utility Function for Perfect Substitute Good and Perfect Complement Good.

1. Perfect Substitute Good:

Utility Function for two perfect substitute good takes the following form:
U(X,Y) = aX + bY.
The budget line: PXX + PYY = M or Y = M/PY PX/PYX
Following method #1 in solving for the optimal bundle, we need to compute MRS = MUx/MUy.
MUx = a and MUy = b MRS = a/b, which is a constant or the slope of the indifference curve is
unchanged for its entire schedule. In other words, the indifference curve is a linear line (as oppose to
the convex indifference curve under Cobb Douglas utility function or L shaped indifference curve under
Leontiff utility function) with the slope equal to the value of the MRS, in this case, a/b.
It should be obvious that equating MRS to the price ratio may not help in solving for the optimal bundle
as the MRS and the price ratio are two constants that can be different.
If MRS = MUx/MUy > Px/Py or MUx/Px > MUy/Py or additional unit of utility per dollar spending on good
X is greater than additional unit of utility per dollar spending on good Y then it is sensible to spend ones
entire income on good X. This is shown in the below diagram and the optimal bundle is on the horizontal
axis (corner solution).
Y
Indifference Curve

BL

Corner
Solution
X

If MRS = MUx/MUy < Px/Py or MUx/Px < MUy/Py or additional unit of utility per dollar spending on good
X is less than unit of additional utility per dollar spending on good Y then it is sensible to spend ones
entire income on good Y. This is shown in the below diagram and the optimal bundle is on the vertical
axis (corner solution). See below diagram.

Y
Corner
Solution

BL

Indifference Curve
X

And of course, when MRS = MUx/MUy = Px/Py or MUx/Px = MUy/Py or additional unit of utility per
dollar spending on good X is the same as additional utility per dollar spending on good Y then the
optimal bundle lies anywhere on the indifference curve/budget line (they entirely overlap) including the
two corners.
2. Perfect Complement Good.
The utility function for perfect complement good takes the following form:
U(X,Y) = MIN(aX,bY).
This function states that the value of the utility takes the minimum value of aX and bY. For example, if aX
= 4 and bY is equal to 6, then U is equal to 4.
The indifference curve for this type of utility function has an L-shaped. So it is difficult, if not impossible,
to determine the MRS = MUx/MUy. Consequently, the common method in solving for the optimal
bundle cannot be used here.
However, this utility function provides the optimal ratio of good X and good Y for a given level of utility.
This optimal ratio can be obtained by equating aX to bY. Or X/Y = b/a.
Notice that this resembles the optimal ratio of X and Y when we equate MRS to the price ratio. In fact, if
we know a, b, Px, Py and M, we can then employ the budget constraint together with the above optimal
ratio to solve for the optimal values of good X and good Y.

Indifference Curve

BL
X