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transformation of the CobbDouglas utility function. You should compare your answers to the regular CobbDouglas
UMP. Hint: Exploit the “rules” derived from the general UMP.
Answer:
The regular CobbDouglas UMP is:
⏟ ⏟ The log CobbDouglas UMP is:
⏟ ⏟ Now: {
Now, let’s check the conditions for each case:
Is Case B the solution? Is Is Case C the solution? Is Therefore Case D must the only solution and here:
16 University of Toronto, Department of Economics, ECO 204, 2013  2014 We can solve for by solving this equation simultaneously with to get (do it!): For example, we can use: The answers for
are identical to the regular CobbDouglas (they have to be) whereas the answer for
This is because you know (or can show) that by the envelope theorem: is different. The answer for is different because we are now measuring on a different scale. After all, we took a log positive
monotonic transformation. 17 University of Toronto, Department of Economics, ECO 204, 2013  2014 Question 5
(
) defined over the consumption set
Consider a (r...
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This homework help was uploaded on 02/15/2014 for the course E 204 taught by Professor Ajaz during the Winter '13 term at University of Toronto.
 Winter '13
 AJAZ

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