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PaulKet PaulKet
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6 years ago
A consumer has the following utility function for goods X and Y:
      U(X,Y) = 5XY3 + 10
The consumer faces prices of goods X and Y given by px and py and has an income given by I.
a.   Write out the Lagrangian expression for the consumer's utility maximization problem.
b.   Write out the first order conditions necessary for maximizing utility subject to the budget constraint.
c.   Show that the first order conditions imply the budget constraint and MRS condition. Provide the economic (i.e. non-mathematical) interpretation of these conditions – specifically, why are they necessary for the consumer to be at the optimal bundle?
d.   Solve for the Demand Equations, X*(px,py,I) and Y*(px,py,I)
e.   Show that the demand equations are homogeneous of degree zero. That is, show
      X*(cpx,cpy,cI) = X*(px,py,I)
   for any positive constant, c.
Textbook 
Microeconomics: Theory and Applications with Calculus

Microeconomics: Theory and Applications with Calculus


Edition: 4th
Author:
Read 370 times
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The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
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unExpectedunExpected
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4 years ago
thanks
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