Consider the utility function-using the lagrangian method

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Consider the utility function U=(x-θ)^α (y-ρ)^(1-α). (a) Provide an intuitive explanation for this kind of preferences; that is, what roles do θ and ρ play? (b) Solve for the optimal combination of x and y. (c) Solve for the indirect utility function V( ). (d)Solve for the expenditure function by minimizing expenditure to attain a given utility level, using the Lagrangian method. (e) Show that inverting the indirect utility function in (c) produces the same expenditure function. The process is tedious and the effort is not worth the insights obtained, but see how close you can get to the answer in (d).

Reference no: EM131244599

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