Answered: 1. For each of the following three… | bartleby

Microeconomic Theory

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.3P

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Question

1. For each of the following three utility functions below, find the demand function
by explicitly solving each utility maximization problem.
(a) u(x1,x2) = xx.
(b) u(x1, x2) = Inx1+2lnx2.
(c) u(x1,x2) = x7x3.

2. Answer the following:
(a) Compare the three demands in Question (1), do you find the results sur-
prising? Why or why not?
(b) Make a serious attempt at coming up with a general statement that cap-
tures these results.

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First household m=$2,500 per month, spends $125 dollars per month on electricity. Second household m=$10,000 per month and spends $200 per month on electricity. p1=0.1 and p2=1 x1=consumption of electricity and x2=everything else The preferences over electricity and other goods is described by a Cobb- Douglas utility function. What are the parameters of the utility function for each of the two households?
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