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First-order conditions and the optimal values

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Reference no: EM131061765

1. Consider the CES utility function:   U = a(Xd/d) + b(Yd /d) if d¹ 0 and  U= a lnX + b lnY if d=0.

a. Assuming d¹ 0,  derive the equation for MUx and MUy. Find MRS.

b.  What sort of preferences are exhibited when d = 1? ...when d = 0? ...when 0<d< 1?...when 0>d?

2. Assume that U =xy and that Px =$10, Py=$5, and I=$100. Use the Lagrange method to find the first-order conditions and the optimal values (i.e., utility maximizing values) of  x and y.

Reference no: EM131061765

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