2.1 A consumer has a utility function u(x1, x2) VTI + x2 and faces a budget constraint y = P1x1 + P2X2. Assuming an interior solution to the consumer's utility maximisation problem (i.e. excluding the possibility of any corner solutions where r 0 or x = 0), solve for r(p, y) and r(p, y), the consumer's Marshallian demand functions. 2.2 Derive the consumer's indirect utility function. 2.3 Derive the consumer's expenditure function. 2.4 Suppose the assumption of an interior solution, as set out in question 2.1 above, is no longer maintained. Discuss how (under what conditions) a corner solution to this specific utility maximisation problem may arise (i.e. where x = 0 or x = 0). Then re-write the solutions for x (p, y) and a(p, y) (the consumer's Marshallian demand functions), as well as the new indirect utility function v(p, y), so as to allow for the occurrence of a corner solution.

2.1 A consumer has a utility function u(x1, x2) VTI + x2 and faces a budget constraint y = P1x1 + P2X2. Assuming an interior solution to the consumer's utility maximisation problem (i.e. excluding the possibility of any corner solutions where r 0 or x = 0), solve for r(p, y) and r(p, y), the consumer's Marshallian demand functions. 2.2 Derive the consumer's indirect utility function. 2.3 Derive the consumer's expenditure function. 2.4 Suppose the assumption of an interior solution, as set out in question 2.1 above, is no longer maintained. Discuss how (under what conditions) a corner solution to this specific utility maximisation problem may arise (i.e. where x = 0 or x = 0). Then re-write the solutions for x (p, y) and a(p, y) (the consumer's Marshallian demand functions), as well as the new indirect utility function v(p, y), so as to allow for the occurrence of a corner solution.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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