Mathematical presentation of utility maximisation, Microeconomics

Assignment Help:

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.   


Related Discussions:- Mathematical presentation of utility maximisation

Returns from education, Returns from Education Monetary benefits from ...

Returns from Education Monetary benefits from education are called as returns. Such benefits accruing to an individual are called as private returns. The sum of all private re

Political economy, Consider the model of corruption explored by Shleifer an...

Consider the model of corruption explored by Shleifer and Vishni’s where there is one government-produced good X. There is a demand for that good described by the inverse demand eq

Determinants of private demand - waiting-time for employment, Determinants ...

Determinants of Private Demand - Waiting-Time for Employment ‘Waiting time’ for employment is another important factor. The waiting time varies from course to course. For inst

Monopsony is one buyer of a commodity, Monopsony is single buyer of a commo...

Monopsony is single buyer of a commodity in the market.  The MRP slopes downward in an imperfectly competitive (resource) market serving an not perfectly competitive product mar

Theory of consumer surplus, THEORY OF CONSUMER SURPLUS: We discuss the...

THEORY OF CONSUMER SURPLUS: We discuss the basic concept of consumer surplus and its derivation. A consumer normally pays less for a commodity than the maximum amount that she

Effect of gasoline tax with rebate, Effect of Gasoline Tax with Rebate ...

Effect of Gasoline Tax with Rebate Assume -Income = $9,000 - Price of gasoline = $1

Supply of labour, use a graphical illustration to briefly describe what the...

use a graphical illustration to briefly describe what the influence of an increase in immigrants would be on the market supply of labour

Indifference curves, Indifference curves present all possible combinations ...

Indifference curves present all possible combinations of market baskets that give the similar level of satisfaction to a person. Indifference Curves 1. Indifferen

Social welfare function, 2 i) Explain what are the key assumptions by the w...

2 i) Explain what are the key assumptions by the welfarist approach. ii) Define and discuss the properties of a Generalized Utilitarian social welfare function and represent it

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd