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4. (Quasilinear Preferences) A consumer's preferences over two goods are described by the fol- lowing utility function: u(x1, x) =x + In x where
4. (Quasilinear Preferences) A consumer's preferences over two goods are described by the fol- lowing utility function: u(x1, x) =x + In x where is the amount of good 1, and x2 is the amount of good 2. Suppose he has $5 available, prices are p = p2 = 1, and she wishes to choose the best affordable bundle (x1, x2), where x1, x2 can be any non-negative numbers: (a) Explain why it is NOT optimal to choose a pair (x1, x2) with x + x2 < 5. (b) Find the optimal bundle.
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Microeconomics
Authors: David Besanko, Ronald Braeutigam
6th Edition
1119554845, 978-1119554844
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