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Question 2 (25 marks). Suppose that the number of goods is 2, that is, L = 2, and that the utility function is B

 

Question 2 (25 marks). Suppose that the number of goods is 2, that is, L = 2, and that the utility function is B u(x, x) = xx 1-3 with 0 < 3 < 1. (1) Set up the utility maximisation problem, give the Lagrangian func- tion for that problem, find the first order conditions. (5 marks) (2) Solve the first order conditions to give the Marshallian demand functions and the equilibrium value of the Lagrangian multiplier. (10 marks) (3) Find the indirect utility function and then use that to find the expenditure function. (5 marks) (4) Find the Hicksian demand functions explaining what results from Consumer Theory you are using. (5 marks)

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