DIRECT UTILITY FUNCTION
Maximize U(X,Y) = ln(A) + αln(X)+ (1-α)ln(Y) Subject to PxX + PyY = I.
Solve the Marshallian demand function
Maximize U(X,Y) = ln(A) + αln(X)+ (1-α)ln(Y) Subject to PxX + PyY = I.
Solve the Marshallian demand function
How to Solve?
Step:
Step:
- Do the Lagrange as below. (L = ln(A) + αln(X)+ (1-α)ln(Y) - [PxX + PyY - I].
- Differentiate X, then find Lambda(Equation 1).
- Differentiate Y, then find Lambda(Equation 2).
- Differentiate Lambda(Equation 3).
- Combine the both equation 1 and 3, then you can find whether X or Y. (Equation 4)
- The X that you get in step 5 (equation 4), then substitute in equation equation 3. Then you will Y (Y Marshallian).
- After that substitute Y in equation in equation 4 to find X (X Marshallian)
Marshallian demand function |
Maximize U(X,Y) = Subject to PxX + PyY = I.
Solve the Marshallian demand function. Marshallian demand function |
Direct Utility Function
Marshallian Demand Functon |
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