Answered: Consider the following utility function…

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter6: Consumer Choice And Demand

Section: Chapter Questions

Problem 2QFR

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Consider the following utility function belonging to “Consumer A”.

U^A(x,y,z,v) = x^0.1y^0.2z^0.3v^0.4.

Suppose that prices of x, y, z and v are 1$, 2$, 3$ and 4$. The consumer’s income is 10$.

a. Find the values of x, y,z and v that maximize the consumer’s utility subject to his/her budget constraint.

b. Suppose that “Consumer B” has a utility function which is a logarithmic transformation of the consumer A’s utility function, i.e.

U^B =ln U^A.

Suppose that prices and income are the same. Would the amounts of x, y, z and v consumed by “Consumer B” be the same as the amounts consumed by “Consumer A”?

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