We want to find the optimal affordable bundle for each of the following utility

Question

We want to find the optimal affordable bundle for each of the following utility functions (with prices and money). For each problem: (a) Check for “regularity conditions” to see if the standard tangency method is applicable: test whether preferences are differentiable, insatiable (monotone), and strictly convex. (b) If you found in (a) that all three conditions are met, find the optimal affordable bundle. (c) If you found in (a) that at least condition fails, clearly state which one and briefly describe why this means that the standard method cannot be used. Note that for any given problem, you will do either (b) or (c), never both. For this problem set, do not try to find the optimal bundle when the standard method does not apply.

show work please

1. u(x, y) = x4/5 y1/5 , Px = 7, Py = 3, m = 45

2. u(x, y) = x179y537, Px = 4, Py = 8, m = 1000.

Explanation / Answer

1. Conditions satisfied, standard lagrangean used: Optimal quantities of (x,y)=(36/7,3)

2. The utility function is not strictly convex.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.