The maximum amount of good y that can be bought if x and y are the only two goods that are available for purchase is 20.
This is the amount of the combinations of two goods that a consumer is able to buy at the given market price with his income.
We have the equation
P1X + P2Y = 400
Definition of terms
P1 = price of first good = $10
p2 = price of second good = $20
x = units = 0
Put the values in the equation above
$10*0 + $20*y = 400
20y = 400
y = 20
We conclude that the amount of good y that can be bought is 20.
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The maximum amount of good y that the business can purchased is 20 units.
The income allocation in the given case can be understood as the proper segregation of income for purchasing two goods at the market price, that is best feasible for the business within their income.
Computation:
Given,
[tex]\rm{P}_1x + P2y = 400[/tex]
[tex]\rm{P_1[/tex] is $10
[tex]\rm{P_2[/tex] is $20
x units are 0
[tex]\begin{aligned}\text{P}_1x + \text{P}_2y& = 400\\\\\$10\times0 + \$20\times y& = 400\\\\20y &= 400\\\\ y&= 20\;\text{units}\end{aligned}[/tex]
Therefore, when the price of good y is $20 the business can purchase 20 units.
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