3.C.6" Suppose that in a two-commodity world, the consumer's utility function takes the form u(x) = [a,x + a2x]". This utility function is known as the constant elasticity of substitution (or CES) utility function. %3D (a) Show that when p = 1, indifference curves become linear. (b) Show that as p 0, this utility function comes to represent the same preferences as the (generalized) Cobb-Douglas utility function u(x) = x'x. (c) Show that as p→ -0, indifference curves become "right angles"; that is, this utility function has in the limit the indifference map of the Leontief utility function u(x, x2): Min {x,, x2}.
3.C.6" Suppose that in a two-commodity world, the consumer's utility function takes the form u(x) = [a,x + a2x]". This utility function is known as the constant elasticity of substitution (or CES) utility function. %3D (a) Show that when p = 1, indifference curves become linear. (b) Show that as p 0, this utility function comes to represent the same preferences as the (generalized) Cobb-Douglas utility function u(x) = x'x. (c) Show that as p→ -0, indifference curves become "right angles"; that is, this utility function has in the limit the indifference map of the Leontief utility function u(x, x2): Min {x,, x2}.
Algebra and Trigonometry (6th Edition)
6th Edition
ISBN:9780134463216
Author:Robert F. Blitzer
Publisher:Robert F. Blitzer
ChapterP: Prerequisites: Fundamental Concepts Of Algebra
Section: Chapter Questions
Problem 1MCCP: In Exercises 1-25, simplify the given expression or perform the indicated operation (and simplify,...
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![3.C.6" Suppose that in a two-commodity world, the consumer's utility function takes the form
u(x) = [a,x{ + a2x%]. This utility function is known as the constant elasticity of substitution
(or CES) utility function.
%3D
(a) Show that when p 1, indifference curves become linear.
(b) Show that as p
0, this utility function comes to represent the same preferences as
the (generalized) Cobb-Douglas utility function u(x) = x'x.
(c) Show that as p -o, indifference curves become "right angles"; that is, this utility
function has in the limit the indifference map of the Leontief utility function u(x1, X2) =
Min {x,, x2}.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fddfc6eda-000c-4658-af90-eb9f28d739c6%2Fc298f6de-fff2-4ddc-bdc8-96aa2e01e27d%2F0ygddj7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3.C.6" Suppose that in a two-commodity world, the consumer's utility function takes the form
u(x) = [a,x{ + a2x%]. This utility function is known as the constant elasticity of substitution
(or CES) utility function.
%3D
(a) Show that when p 1, indifference curves become linear.
(b) Show that as p
0, this utility function comes to represent the same preferences as
the (generalized) Cobb-Douglas utility function u(x) = x'x.
(c) Show that as p -o, indifference curves become "right angles"; that is, this utility
function has in the limit the indifference map of the Leontief utility function u(x1, X2) =
Min {x,, x2}.
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