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Utility maximization under constraint, substitution and income effect, CV and EV (20 points) Josh gets utility (satisfaction) from two goods,AandB, according to the utility functionU(A,
- Utility maximization under constraint, substitution and income effect, CV and EV (20 points)
- Josh gets utility (satisfaction) from two goods,AandB, according to the utility functionU(A, B) = 3[A3+B3]3+ 50. While Josh would like to consume as much as possible he is limited by his income.
- a. Maximize Josh's utility subject to the budget constraint using the Lagrangean method (10 points).
- b. SupposePAincreases. Show graphically the income, substitution effect and total effect and explain (5 points).
- c. SupposePAincreases. Show the graphs for CV and EV and explain. One graph for CV and one graph for EV (5 points).
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