Utility function over clothing (C) and greens (G) is defined by the function U(C,G)=C^(1/4)+G^(1/4). Let P(of...

Utility function over clothing (C) and greens (G) is defined by the function U(C,G)=C^(1/4)+G^(1/4). Let P(of C) and P(of G) denote the prices of cherries and grapes respectively. W is income that is available to consumer to spend on those two goods.

(a) Write down the customer's utility maximization problem.

(b) set up the langrangian and solve for the first order condition.

Solutions

Expert Solution

To find the demand functions, we need to put the above first-order condition in budget constraint. It then involves messy algebraic manipulations, that gives us a demand function of the form:

C* = W/P_c (1+(P_c / Pg))

G* = W/P_g (1+(P_g /P_c))

Rahul Sunny answered 1 year ago

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