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(a) Gwyneth is conducting research into consumer behaviour. She has decided to use the utility function u(x1, x2) = Inx₁ + x2, where x₁ is her consumption of salad and x2 is her consumption of candles. Let prices of x₁ and x2 be denoted by p₁ and p2. Gwyneth earns an income of m. i. Set up the utility maximisation problem. ii. Use a Lagrangian to derive the demands for salad and candles. iii. Illustrate the income offer curve and engel curves for salad. (') Do you think the utility function in (a) is sensible? Explain.

(a) Gwyneth is conducting research into consumer behaviour. She has decided to use the utility function u(x1, x2) = Inx₁ + x2, where x₁ is her consumption of salad and x2 is her consumption of candles. Let prices of x₁ and x2 be denoted by p₁ and p2. Gwyneth earns an income of m. i. Set up the utility maximisation problem. ii. Use a Lagrangian to derive the demands for salad and candles. iii. Illustrate the income offer curve and engel curves for salad. (') Do you think the utility function in (a) is sensible? Explain.

Micro Economics For Today
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 3SQP
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(a) Gwyneth is conducting research into consumer behaviour. She has decided to use the utility function u(x1, x2) = Inx₁ + x2, where x₁ is her consumption of salad and x2 is her consumption of candles. Let prices of x₁ and x2 be denoted by p₁ and p2. Gwyneth earns an income of m. i. Set up the utility maximisation problem. ii. Use a Lagrangian to derive the demands for salad and candles. iii. Illustrate the income offer curve and engel curves for salad. (') Do you think the utility function in (a) is sensible? Explain.
Transcribed Image Text:(a) Gwyneth is conducting research into consumer behaviour. She has decided to use the utility function u(x1, x2) = Inx₁ + x2, where x₁ is her consumption of salad and x2 is her consumption of candles. Let prices of x₁ and x2 be denoted by p₁ and p2. Gwyneth earns an income of m. i. Set up the utility maximisation problem. ii. Use a Lagrangian to derive the demands for salad and candles. iii. Illustrate the income offer curve and engel curves for salad. (') Do you think the utility function in (a) is sensible? Explain.
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