Given, the utility function is a Cobb-Douglas utility, u = x₁x), and budget m = pix1 + P2X2. a) Derive the optimal demand curve for good 1, xi(m,p1), and good 2, x.(m, p2). b) Assume m=160, p₁-8 and p2=1. Based on your answer in part a, what is the optimal consumption bundle (x₁,x₂)? c) Suppose price of good 1 falls to pi'=2 (while m=160 and p2=1 still). Using your answer

Given, the utility function is a Cobb-Douglas utility, u = x₁x), and budget m = pix1 + P2X2. a) Derive the optimal demand curve for good 1, xi(m,p1), and good 2, x.(m, p2). b) Assume m=160, p₁-8 and p2=1. Based on your answer in part a, what is the optimal consumption bundle (x₁,x₂)? c) Suppose price of good 1 falls to pi'=2 (while m=160 and p2=1 still). Using your answer

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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