3. A consumer is faced with a utility function u(x, y) = 4x² + 3xy + y² And his budget constraint is given by ln(xy) = 5. a) Find the optimal values of x and y b) Find the value of the shadow price Interpret the value of lambda. Does it make economic sense?
3. A consumer is faced with a utility function u(x, y) = 4x² + 3xy + y² And his budget constraint is given by ln(xy) = 5. a) Find the optimal values of x and y b) Find the value of the shadow price Interpret the value of lambda. Does it make economic sense?
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.2P
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Transcribed Image Text:3. A consumer is faced with a utility function
u(x, y) = 4x² + 3xy + y²
And his budget constraint is given by ln( xy) = 5.
a) Find the optimal values of x and y
b)
Find the value of the shadow price
c) Interpret the value of lambda. Does it make economic sense?
d)
Other than completeness, monotonicity and transitivity, discuss the other three axioms of
consumer preferences.
e) Using practical examples discuss the duality principle as it relates to both the firm and
households.
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