This preview shows pages 1–2. Sign up to view the full content.
Microeconomics
ECON 100A
Problem Set 5
Due October 26, 2010 (Solutions Posted October 29, 2010)
1.
Consider the expenditure minimization problem subject to achieving a given level of utility
5
.
1
5
.
0
8
z
x
U
=
a.
Illustrate the consumer’s problem
b.
Write down the first order conditions for this constrained optimization problem
.
c.
Solve for the optimal consumption bundle, X
h
and Z
h
, as a function of
x
p
,
z
p
, and
U
.
d.
Solve for minimum expenditures as a function of
x
p
,
z
p
, and
U
e.
OK, now you will need to get a calculator.
Let Px=$2.50 and Pz=$3.33 and
U
=432.
What
are the numerical values of X
h
, Z
h
and E?
Put these values on your graph.
f.
What is the numerical value of
λ
h
?
Use words to interpret this number. You did the utility
maximization subject to a budget constraint question with this utility function (and derived
Marshallian demand curves) on an earlier problem set. Compare the value of
λ
h
you get here
to the value of
λ
*
from that earlier question.
How are these two different Lagrange
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
 Fall '08
 ZAMBRANO
 Microeconomics, Utility

Click to edit the document details