UCLA ECON 11 - ex2sol (14 pages)

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ex2sol



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ex2sol

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Pages:
14
School:
University of California, Los Angeles
Course:
Econ 11 - Microeconomic Theory
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Economics 11 Byeong Hyeon Jeong Answer for the second extra exercises 3 a U px1 x2 q mintx1 x2 u where x1 is for black coffee and x2 is for sugar b At the optimal choice x1 x2 and p1 x1 p2 x2 m By solving simultaneously for x1 and x2 m p1 p2 m x2 pp1 p2 mq p1 p2 x1 pp1 p2 mq are the demand functions You can get the optimal choice by plugging p1 1 p2 2 and m 21 x 1 x 2 7 4 b Using the tangency approach 1 p1 x1 p2 p1 x1 p2 x2 m By solving simultaneously for x1 and x2 p2 p1 m 1 x2 p2 x1 Note that there is a possibility of corner solution as x2 can be negative when m p2 If m p2 the optimal consumption of good 2 is 0 and by using all the income in good 1 the optimal consumption October 14 2016 1 Economics 11 Byeong Hyeon Jeong of good 1 is m p1 The demand functions can be written as x1 pp1 p2 mq p2 p1 m p1 if p2 m if p2 m m 1 if p m 2 x2 pp1 p2 mq p2 0 if p m 2 a As we already have the demand functions getting optimal choices can be done by plugging the numbers i x 1 1 x 2 19 ii x 1 1 x 2 39 iii x 1 0 5 x2 29 October 14 2016 2 Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Exercise 2 Choice Demand


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