Question
2. Assume that U= (x+2)(y+1), but this time assign no specific numerical values to the price and income parameters: (a) Write out the lagrangian function.
2. Assume that U= (x+2)(y+1), but this time assign no specific numerical values to the price and income parameters: (a) Write out the lagrangian function. (b) Find x*, y* and Lambda* in terms of the parameters Px, Py and B. (c) Check the second-order sufficient condition for maximum. (d) By setting Px=4, Py=6 and B=130, check the validity of your answer to Prob 1. 3. Can your solution (x*, y*) in Prob. 2 yield any comparative-static information? Find all the comparative-static derivatives you can, evaluate their signs, and interpret their economic meaning.
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