A consumer has the following utility function: U(x, y) =x(y+1), where x and y are quantities of
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Question:
A consumer has the following utility function: U(x, y) =x(y+1), where x and y are quantities of two consumption goods whose prices are
Pxand Py respectively. The consumer also has a budget of B. Therefore, the consumer's Lagrangian is
x(y+1)+(BPxxPyy) x
(a) From the first-order conditions find expressions for the demand functions. What kind of good is y? In particular, what happens when Py> B?
(b) Verify that this is a maximum by checking the second-order conditions
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