Consider the utility function U = 2 In x₁ + In x₂, where the x, are consumption goods. 1. Set up the budget-constrained utility-maximization problem, and derive the Marshallian demand functions. 2. Suppose prices are p₁ = 3 and p₂ = 1, and income m= 100. Use your answer from #1 to calculate the specific numerical solutions. Calculate the specific utility value for your solution. 3. Use your answers to #1 to derive the indirect utility function. stions from the indirect utility

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider the utility function U = 2 In x₁ + In x2, where the x₁ are consumption goods.
1. Set up the budget-constrained utility-maximization problem, and derive the Marshallian
demand functions.
2. Suppose prices are p₁ = 3 and p₂ = 1, and income m = 100. Use your answer from #1
to calculate the specific numerical solutions. Calculate the specific utility value for your
solution.
3. Use your answers to #1 to derive the indirect utility function.
4.
Use Roy's Identity to derive the Marshallian demand functions from the indirect utility
function found in #3.
5.
Set up the expenditure-minimization function, which is the dual version of the primal
consumer maximization problem you set up in #1, and derive the Hicksian demand
functions.
6. Use the same prices and calculated utility value in #2 to calculate the specific numerical
solutions to #5.
7. Use your answer to #5 to derive the expenditure function.
8. Use Hotelling's Lemma to derive the Hicksian demand functions from the expenditure
function.
9. Use Slutsky's Equation to show the connection between Marshallian and Hicksian
demand functions.
10. Suppose the price of good 2 increases to P2 = 2. Calculate the compensating variation
associated with this price change.
11. Now calculate the Equivalent Variation associated with that same price change.
Transcribed Image Text:Consider the utility function U = 2 In x₁ + In x2, where the x₁ are consumption goods. 1. Set up the budget-constrained utility-maximization problem, and derive the Marshallian demand functions. 2. Suppose prices are p₁ = 3 and p₂ = 1, and income m = 100. Use your answer from #1 to calculate the specific numerical solutions. Calculate the specific utility value for your solution. 3. Use your answers to #1 to derive the indirect utility function. 4. Use Roy's Identity to derive the Marshallian demand functions from the indirect utility function found in #3. 5. Set up the expenditure-minimization function, which is the dual version of the primal consumer maximization problem you set up in #1, and derive the Hicksian demand functions. 6. Use the same prices and calculated utility value in #2 to calculate the specific numerical solutions to #5. 7. Use your answer to #5 to derive the expenditure function. 8. Use Hotelling's Lemma to derive the Hicksian demand functions from the expenditure function. 9. Use Slutsky's Equation to show the connection between Marshallian and Hicksian demand functions. 10. Suppose the price of good 2 increases to P2 = 2. Calculate the compensating variation associated with this price change. 11. Now calculate the Equivalent Variation associated with that same price change.
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