The Cobb Douglas utility function U(x,y)

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The Cobb-Douglas utility function U(x,y) (x?)

Given the Cobb-Douglas utility function U(x,y) (x?)(y1-?),where 0,?1. This problem illustrates a few more attributes of that function. a. Calculate the indirect utility function for this Cobb-Douglas case. b. Calculate the expenditure function for this case. c. Show that the Engels curves are straight lines.

ANSWER

Suppose that a consumer's utility function is U(x,y) xy 10y. The marginal utilities for this utility function are MUx y and MUy x10. The price of good x is Px and the price of good y is Py, with both prices positive. The consumer has income I. Assume that the consumer's optimal bundle is an interior solution. Show that the demand for good x is x (I/2Px) 5 Solution: We know that U(x,y) xy 10y. MUx dU/dx ...

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wisdomrays
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Published On:
10/05/2020
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