question archive A consumer has the following utility function: U(x, y) =x(y+1), where x and y are quantities of two consumption goods whose prices are Px and Py respectively
A consumer has the following utility function: U(x, y) =x(y+1), where x and y are quantities of two consumption goods whose prices are Px and Py respectively
Subject:EconomicsPrice: Bought3
A consumer has the following utility function: U(x, y) =x(y+1), where x and y are quantities of two consumption goods whose prices are
Px and Py respectively. The consumer also has a budget of B. Therefore, the consumer's Lagrangian is
x(y+1)+λ(B−Pxx−Pyy) x
(a) From the first-order conditions find expressions for the demand functions. What kind of good is y? In particular, what happens when Py > B?
(b) Verify that this is a maximum by checking the second-order conditions
