Question 2 (25 marks). Suppose that the number of goods is 2, that is, L =...

 

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Question 2 (25 marks). Suppose that the number of goods is 2, that is, L = 2, and that the utility function is B u(x₁, x₂) = x₁³³x₂² 1-3 with 0 < 3 < 1. (1) Set up the utility maximisation problem, give the Lagrangian func- tion for that problem, find the first order conditions. (5 marks) (2) Solve the first order conditions to give the Marshallian demand functions and the equilibrium value of the Lagrangian multiplier. (10 marks) (3) Find the indirect utility function and then use that to find the expenditure function. (5 marks) (4) Find the Hicksian demand functions explaining what results from Consumer Theory you are using. (5 marks) Question 2 (25 marks). Suppose that the number of goods is 2, that is, L = 2, and that the utility function is B u(x₁, x₂) = x₁³³x₂² 1-3 with 0 < 3 < 1. (1) Set up the utility maximisation problem, give the Lagrangian func- tion for that problem, find the first order conditions. (5 marks) (2) Solve the first order conditions to give the Marshallian demand functions and the equilibrium value of the Lagrangian multiplier. (10 marks) (3) Find the indirect utility function and then use that to find the expenditure function. (5 marks) (4) Find the Hicksian demand functions explaining what results from Consumer Theory you are using. (5 marks)

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2 Let the utility function be xx U The budget equation is Px1 P2x M Where P1 P2 are two pri... View the full answer