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
the law diminishing marginal utility explain through flow chart

Given the following table MUx MUx/Px Qty MUy MUy/Py 80 40 1 68 17 52 26 2 32 8 20 10 3 28 7 16 8 4 24 6 8 4 5 20 5

schedule and diagram of iso cost

Telecommunications industry in South Africa

can you help me figure out how to create a graph with little or no information

function with equation,variable,parameter

What are the properties of consumer demand? Properties of Consumer Demand: In this section check the comparative statics of consumer demand behaviour as: how the demand of cons

Due April 8 a) Produce some initial summary statistics of the data. b) State the hypotheses that will be tested. Show me advanced results (analyses, not write-up/paper) Due April

The demand for soft drinks has been estimated asQx 20PX 0.25PY0.45M 2 Determine the own, cross and income price elasticities of demand. Interpret your results.