Consider the following Cobb-Douglas utility function: U(x,y) = 10 + 22xy, where x denotes the quantity...

Consider the following Cobb-Douglas utility function: U(x,y) = 10 + 22xy, where x denotes the quantity of apples and y denotes the quantity of pears. Income is m; the price for one apple is px and the price for one pear is py. b) By applying the Lagrangian method, derive the optimal demands for apples and pears. c) What is the impact of an increase in the price of apples on the optimal demand for pears? What is the impact of an increase in income on the optimal demand for apples? d) If px = 5, py = 3, and m = 10, what is the optimal consumption bundle? Illustrate your answer in a graph.

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Rahul Sunny answered 1 year ago

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