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Consider the following utility maximization problem: Maximize (, ) = 100 There are two goods: good and good . Price of good is Price of
Consider the following utility maximization problem: Maximize (, ) = 100 There are two goods: good and good . Price of good is Price of good is In the competitive market, and are given. The consumers budget is: + = M M is the money income of the consumer. (a) Write down the Lagrangean function. (5 points) (b) Solve the optimal values of , y, and (the lagrange multiplier) as functions of prices and money income (15 points) (c) Check the second order (sufficient) conditions for a maximum (10 points)
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