Consider a CES (constant elasticity of substitution) utility function u : R++ → R where el-y – 1 u(c) = 1-7 for all e> 0. (a) Compute the elasticity of marginal utility (i.e. the derivative of the utility function) with respect to consumption (that is, the absolute value of the percent change in marginal utility when consumption increases by 1%) and verify that it is indeed a constant number.

Consider a CES (constant elasticity of substitution) utility function u : R++ → R where el-y – 1 u(c) = 1-7 for all e> 0. (a) Compute the elasticity of marginal utility (i.e. the derivative of the utility function) with respect to consumption (that is, the absolute value of the percent change in marginal utility when consumption increases by 1%) and verify that it is indeed a constant number.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.11P

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