Exercise 1 A consumer's utility function is u(x, y) = x²y³ and the budget constraint is pax +Pyy ≤ w, where the parameters pa, py and w are all strictly positive. (a) Solve the consumer's utility maximization problem. (b) Use the envelope theorem to estimate the change in the indirect utility function (i.e., the problem's value function) when the price py is changed to py + €, with € > 0.

Exercise 1 A consumer's utility function is u(x, y) = x²y³ and the budget constraint is pax +Pyy ≤ w, where the parameters pa, py and w are all strictly positive. (a) Solve the consumer's utility maximization problem. (b) Use the envelope theorem to estimate the change in the indirect utility function (i.e., the problem's value function) when the price py is changed to py + €, with € > 0.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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