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[25 points] (Taxes) Suppose a person has a Cobb-Douglas utility function U (x1; x2) = x1x2. Denote the prices of the goods as p1 and

[25 points] (Taxes) Suppose a person has a Cobb-Douglas utility function U (x1; x2) = x1x2. Denote the prices of the goods as p1 and p2, and the income of the person as I. [a] [7 points] Write down the optimality conditions for maximizing the utility function subject to the budget constraint. Derive the (Marshallian) demand functions x1 (p1; p2; I) and x2 (p1; p2; I). [b] [3 points] Find the persons indirect utility function V (p1; p2; I)

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