A utility maximising consumer has the following utility function u(x,y)=x0.3y0.7 which he seeks to maximise subject...

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A utility maximising consumer has the following utility function u(x,y)=x0.3y0.7 which he seeks to maximise subject to a budget constraint. The prices of X and Y are P, and Py respectively. a. Define the meaning of the term utility. b. Explain the significance of the budget line in utility maximisation. c. Set up the Lagrangean function. 1 Marks 2 Marks 2 Marks d. What is the importance of using the above function? 2 Marks e. Derive the optimal values of X and Y in terms of Px, Py and income and give economic interpretation of these values. 6 Marks f. What is the economic interpretation of the superscripts 0.3 and 0.7 in the above equation? 2 Marks A utility maximising consumer has the following utility function u(x,y)=x0.3y0.7 which he seeks to maximise subject to a budget constraint. The prices of X and Y are P, and Py respectively. a. Define the meaning of the term utility. b. Explain the significance of the budget line in utility maximisation. c. Set up the Lagrangean function. 1 Marks 2 Marks 2 Marks d. What is the importance of using the above function? 2 Marks e. Derive the optimal values of X and Y in terms of Px, Py and income and give economic interpretation of these values. 6 Marks f. What is the economic interpretation of the superscripts 0.3 and 0.7 in the above equation? 2 Marks

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a Utility is a measure of satisfaction or happiness that a consumer derives from consuming a good or ... View the full answer