4.10 CobbDouglas utility In Example 4.1 we looked at the CobbDouglas utility function U(x, y) xa...

4.10 Cobb–Douglas utility In Example 4.1 we looked at the Cobb–Douglas utility function U(x, y) ¼ xa y

1#a

, where 0 " a " 1. This problem illustrates a few more attributes of that function.

a. Calculate the indirect utility function for this Cobb–Douglas case.

b. Calculate the expenditure function for this case.

c. Show explicitly how the compensation required to offset the effect of an increase in the price of x is related to the size of the exponent a.