Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Given a Cobb-Douglas utility function given by U(X,Y) X Y , where for convenience we assume 1 (a) Form the relevant Lagrangian expression if X
Given a Cobb-Douglas utility function given by
U(X,Y) X Y
, where for convenience we assume
1
(a) Form the relevant Lagrangian expression if X and Y have prices PX, PY and the consumers income
is given by I
(b) Derive the first-order conditions
(c) Solve for the utility maximizing values of X* and Y*
(d) Explain why an individual whose utility function is given by the equation above will always
choose to allocate
percent of his or her income to buying good X and
percent to buying
good Y, i.e. show that
PxX/I= Alfa
PyY/I=Beta
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started