Question
I have my economics midterm coming up and need help with this question off the practice exam. Please write out any explantions you can, it
I have my economics midterm coming up and need help with this question off the practice exam. Please write out any explantions you can, it would be greatly appreicated, thank you!!
2.) Consider a Cobb-Douglas utility function of the type U = x^0.5 y^0.5 and a budget constraint 20 = 2x + y.
(a) Find the demand function and show that the shares of expenditure on x and y are constant and equal to 0.5.
(b) Now consider the utility function U = xy and the same budget constraint 20 = 2x + y. Find the demand function and show that for this case also the shares of expenditure on x and y are constant and equal to 0.5.
(c) Why even though the utility functions are dierent the shares are still the same. What determines the shares?
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