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A consumer has utility function U(x1,x2)= x1x2 / (x1 + x2) (a) Solve the utility maximization...

A consumer has utility function

U(x1,x2)= x1x2 / (x1 + x2)

(a) Solve the utility maximization problem. Construct the Marshallian demand function D(p,I) and show that the indirect utility function is

V (p, I) = I / (p1+ 2 * sqrt (p1*p2) + p2)

(b) Find the corresponding expenditure function e(p; u). HINT: Holding p fixed, V and e are inverses. So you can find the expenditure function by working with the answer to part (a).

(c) Construct the Hicksian demand function. HINT: use Shephard’s lemma.

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