Assume the utility function is U (x, x) = x1x. If the consumer has income I...

   

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Assume the utility function is U (x₁, x₂) = x1x₂. If the consumer has income I = 240 and faces prices Px1 - $8 and Px2 - $2. a) Determine the optimal consumption basket given these prices and income using substitution and the Lagrange method. b) Determine the change in the optimal basket if the price of good.x2 increases to $8. Use both methods as in a) above. Assume the utility function is U (x₁, x₂) = x1x₂. If the consumer has income I = 240 and faces prices Px1 - $8 and Px2 - $2. a) Determine the optimal consumption basket given these prices and income using substitution and the Lagrange method. b) Determine the change in the optimal basket if the price of good.x2 increases to $8. Use both methods as in a) above.

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To determine the optimal consumption basket for a consumer with the utility function Ux1 x2 x1 x2 given an income of I 240 and prices Px1 8 and Px2 2 you can use both the substitution method and the L... View the full answer