Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

answer fast Question 6 A person's utility function is u(x1, x2) = x1x2. The person has an income of / = 140. The prices of

image text in transcribed

answer fast

image text in transcribed
Question 6 A person's utility function is u(x1, x2) = x1x2. The person has an income of / = 140. The prices of the two goods are initially p1 = p2 = 1. Then the price of good 2 increases to p2 = 1.6. In addition to the budget constraint, the con- sumer faces a "survival constraint," i.e., the consumer needs consumption bundles (x1, x2) that satisfy x1 + 10x2 2 770 to be able to survive. Determine the optimal consumption before and after the price change, by using the Lagrangean. Note: You can assume that the constraints x1 2 0 and x2 2 0 are slack at the optimum

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics

Authors: Michael Parkin

10th Edition

013485330X, 978-0134853307

More Books

Students also viewed these Economics questions

Question

6. How can a message directly influence the interpreter?

Answered: 1 week ago