Mathematical presentation of utility maximisation, Microeconomics

Mathematical Presentation of Utility maximisation:

Consumer's objective is to maximise her utility by solving UMP. To solve UMP, we set the Lagrange function of the corresponding problem, which is,    L(x1, x2) = U(x1, x2) + λ (M-p1x1-p2x2) Our objective is to maximise this Lagrange function by choosing x1, x2 and λ. For that we differentiate the Lagrange function by x1, x2 and  λ, and set all equal to zero.  

 

547_Mathematical Presentation.png

is the slope of the indifference curve and  p1/p2 is the slope of the budget line. So, at equilibrium we have a slope of the indifference curve that is equal to the slope of the budget line. Again, from equation (f3) we get M = p1x1+p2x2, so budget equation holds with equality sign.   

Posted Date: 10/26/2012 3:00:25 AM | Location : United States







Related Discussions:- Mathematical presentation of utility maximisation, Assignment Help, Ask Question on Mathematical presentation of utility maximisation, Get Answer, Expert's Help, Mathematical presentation of utility maximisation Discussions

Write discussion on Mathematical presentation of utility maximisation
Your posts are moderated
Related Questions
what happen when a new resources has been discovered for computer

The Money Multiplier is explained below: If you see carefully, the money multiplier is nothing but an inverse of a reserve ratio. Therefore, we can write MM = 1/rr, where rr is


What is the classical model's explanation for involuntary unemployment? According to the classical model, involuntary unemployment only increases when there is something impedi

Exit Strategy The exit strategy denotes that which investors in an organizations realize all or elements of their investment, regardless of the organizations success.

Hydrogen, Alkali and Alkaline earth metals Lithium atom and ion are very small and are comparable in sizes to those of Mg. Their polarizing power (charge / radius) are almost t

discuss the implications of various market structures(competitive and non-competitive)for price determination

Reasons for development planning: To maximize the utilization of economic resources: The resources of any nation are not always enough for her use. In this wise, resources mus

In the table below are given the output (X), T.C., and Price for a firm. Complete the following table, and then answer the questions at the bottom of the table.   X T.C P=A.R

determinate equilibrium price and quantity. if Qd=7-1/2p AND Qs=1/4P-1/2