Consider a trader i has following utility function: u;(x1, X2) = x† xª, 1-a where x; refers to the quantity of asset with price pi, and i = 1,2 in this case. Suppose the total money of this trader to be completely used for trading is M, and during the whole trading process the price of asset remains constant. (a) Determine the optimal quantity x for each asset that this trader can buy when she wants to maximize her utility function. (b) Describe in words about her preferences correponding to a = 0, a = 1, and α 0.5.

Consider a trader i has following utility function: u;(x1, X2) = x† xª, 1-a where x; refers to the quantity of asset with price pi, and i = 1,2 in this case. Suppose the total money of this trader to be completely used for trading is M, and during the whole trading process the price of asset remains constant. (a) Determine the optimal quantity x for each asset that this trader can buy when she wants to maximize her utility function. (b) Describe in words about her preferences correponding to a = 0, a = 1, and α 0.5.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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