(a) On the same axes, sketch Alice's budget set and some contours u₁(x, y) = c for positive values of c. By referring to your sketch explain why the method of Lagrange multipliers can be used to find the maximum value of u₁(x, y) subject to her budget constraint. Hence use the method of Lagrange multipliers to find Alice's optimal bundle. (b) On the same axes, sketch Bob's budget set and some contours up (x, y) = c For positive values of c.

(a) On the same axes, sketch Alice's budget set and some contours u₁(x, y) = c for positive values of c. By referring to your sketch explain why the method of Lagrange multipliers can be used to find the maximum value of u₁(x, y) subject to her budget constraint. Hence use the method of Lagrange multipliers to find Alice's optimal bundle. (b) On the same axes, sketch Bob's budget set and some contours up (x, y) = c For positive values of c.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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