Consider the utility function U(x 1 , x 2 ) = x 1 x 2 with budget

Question:

Consider the utility function U(x1, x2) = x1x2 with budget constraint p1x1 + p2x2 = c.
(a) Show that the maximum of U(x1, x2) subject to the budget constraint is equal to c2/(4p1 p2).
(b) Calculate the value of the Lagrange multiplier λ occurring in (a).
(c) Prove the following interpretation: λ is the rate of increase in utility per unit increase in total budget c.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Calculus

ISBN: 9781319055844

4th Edition

Authors: Jon Rogawski, Colin Adams, Robert Franzosa

Question Posted: