Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A consumer has preferences over 3 goods represented by the utility function
u(x1, x2, x3) = √√√x1x2-2-3.
As usual, goods 1 and 2 are perfectly divisible, meaning that ₁ and 2 can take on any
nonnegative real values and need not be integers. Good 3 is indivisible and unique, meaning
that x3 must be either 0 or 1 (for example, good 3 could be an original painting).
(a) Show that this consumer's preferences are monotone.
(b) Find this consumer's Marshallian demand.
(c) Find this consumer's expenditure function.
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