1. A consumer has preferences represented by the utility function u(x1, x2) = √ (x1x2). If she faces prices p1 = 1 and p2 = 5, and has income m = 10, what are her demands for goods 1 and 2?

2. A consumer has preferences represented by the utility function u(x1, x2) = 1 2 ln x1 + 1 2 ln x2. If she faces prices p1 = 1 and p2 = 5, and has income m = 10, what are her demands for goods 1 and 2? Are the demands the same as those you obtained in Question 1? Can you explain why?

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1 u x 1 x 2 x 1 x 2 05 Budget line 10 x 1 5x 2 Consumption is optimal when ... View the full answer