Suppose you have a total income of / to spend on two goods x; and xz with unit prices p, and p2 respectively. Your taste

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Suppose You Have A Total Income Of To Spend On Two Goods X And Xz With Unit Prices P And P2 Respectively Your Taste 1 (18.39 KiB) Viewed 57 times

Suppose you have a total income of / to spend on two goods x; and xz with unit prices p, and p2 respectively. Your taste can be represented by the utility function u(x1,x2) = X1 X2 + x2 a What is your optimal choice for x; and X2 (as functions of p, and pz and ) ? Use the Lagrange Method is the preference homothetic? b. Given prices p, and pa what is the maximum utility you can attain with an income What do we call this function? c. Given prices p, and p; what is the minimum expenditure you need to attain a utility level in What do we call this function? (Hint: use your result in b) d. Using your result in (c), derive the compensated demand functions hy and housing the Shephard's Lemma