ajaz_204_2013_2014_HW_5

You should compare your answers to the regular cobb

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Unformatted text preview: nic transformation of the Cobb-Douglas utility function. You should compare your answers to the regular Cobb-Douglas UMP. Hint: Exploit the “rules” derived from the general UMP. Answer: The regular Cobb-Douglas UMP is: ⏟ ⏟ The log Cobb-Douglas 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 Cobb-Douglas (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.

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