Consider a consumer with wealth w who consumes two goods, which we shall call goods A and B. Let the amount of good that the consumer consumes be xe and the price of good l be pe. Suppose that the consumer's preferences are described by the utility function: u(XA,XB) = ailog xA+ a²log XB where the at are some fixed strictly positive parameters and all logs are natural logs. a. Set up the utility maximisation problem and write down the Lagrangian. b. Write down the first order necessary conditions for an interior maximum. c. Solve the first order conditions to obtain the Marshallian demand functions
Consider a consumer with wealth w who consumes two goods, which we shall call goods A and B. Let the amount of good that the consumer consumes be xe and the price of good l be pe. Suppose that the consumer's preferences are described by the utility function: u(XA,XB) = ailog xA+ a²log XB where the at are some fixed strictly positive parameters and all logs are natural logs. a. Set up the utility maximisation problem and write down the Lagrangian. b. Write down the first order necessary conditions for an interior maximum. c. Solve the first order conditions to obtain the Marshallian demand functions
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider a consumer with wealth w who consumes two goods, which we shall call
goods A and B. Let the amount of good that the consumer consumes be xe and the
price of good l be pe. Suppose that the consumer's preferences are described by the
utility function:
u(XA,XB) = ailog xA+ a²log XB
where the at are some fixed strictly positive parameters and all logs are natural logs.
a. Set up the utility maximisation problem and write down the Lagrangian.
b. Write down the first order necessary conditions for an interior maximum.
c. Solve the first order conditions to obtain the Marshallian demand functions
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