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Micro review. In this question, we'll explore a slight generalization of the utility max- imization problems we considered in section. Let's suppose we have
Micro review. In this question, we'll explore a slight generalization of the utility max- imization problems we considered in section. Let's suppose we have an economic agent maximizing utility over two goods Tl, :r2, each with price 1. Furthermore, this agent's utility is given by the following form, called the Stone-Geary utility function: (Tl 02) 13. 0 < [3 O [J@l, :1t2 Note that in the special case when O, we recover the Cobb-Douglas utility function discussed in section (this may be useful in verifying your answers in (b)). The agent's total budget available for spending is w (you may assume that + w). (a) What is the agent's budget constraint? (b) Solve for the agent's optimal choice of .Tl*, x;. (Hint: is there a handy increasing transformation that would make this problem simpler to solve?)
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