18. Consider an individual with preferences over two goods, x and x represented by the Constant...

Transcribed Image Text:

18. Consider an individual with preferences over two goods, x and x represented by the Constant Elasticity of Substitution utility function (x,2)=(/ +/ ). The individual has $20 to spend on the two goods. The price of one unit of Good 1 is $1. The price of one unit of Good 2 is p. Solve for the optimal bundle in terms of P2. In other words, set up the Lagrangian and solve the First Order Conditions in the manner in which you are accustomed. The only difference is that instead of a specific value of P2, it will be a constant variable that appears in your final solutions. A. = = 1+ p-1/2 20p 3/2 B. X = -1/2 , 20 20 1+P 20 -1/2 P (1+p1/2) C. x=10,x2 = 0 D. x =0,x2 10 P 2 18. Consider an individual with preferences over two goods, x and x represented by the Constant Elasticity of Substitution utility function (x,2)=(/ +/ ). The individual has $20 to spend on the two goods. The price of one unit of Good 1 is $1. The price of one unit of Good 2 is p. Solve for the optimal bundle in terms of P2. In other words, set up the Lagrangian and solve the First Order Conditions in the manner in which you are accustomed. The only difference is that instead of a specific value of P2, it will be a constant variable that appears in your final solutions. A. = = 1+ p-1/2 20p 3/2 B. X = -1/2 , 20 20 1+P 20 -1/2 P (1+p1/2) C. x=10,x2 = 0 D. x =0,x2 10 P 2