An individual consumes two goods, X and Y, and receives utility according to a Cobb-Douglas production function of the form: U(X,Y)= X1/3Y2/3. Give that MUX= 13(MUYMUX)2/3 and MUY= 23(MUXMUY)1/3 find the consumers optimal demand functions for X and Y in terms of PX, PY, and I. Explain why I could have solved the problem above using the utility function U(X,Y)= XY2 and would have obtained the same answer. What is it about utility that makes this possible?
An individual consumes two goods, X and Y, and receives utility according to a Cobb-Douglas production function of the form: U(X,Y)= X1/3Y2/3. Give that MUX= 13(MUYMUX)2/3 and MUY= 23(MUXMUY)1/3 find the consumers optimal demand functions for X and Y in terms of PX, PY, and I.
Explain why I could have solved the problem above using the utility function
U(X,Y)= XY2
and would have obtained the same answer. What is it about utility that makes this possible?
Economists define the ‘certainty equivalent’ of a risky stream of income as the amount of guaranteed money an individual would accept instead of taking a risk. The certainty equivalent varies between individuals based on their risk preference.
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