Two goods are given, whereby ?1 and ?2
each indicate the number of units of these goods. The preference
structure of an individual is defined by the following numerical
(ordinal) representation is given:
u(x1, x2) = x1^1/2*
x21^1/4
Furthermore the prices of the goods are given by ?1 and
?2, while the consumers an income in the amount of ? is
available. We want to demand, that ?1 ≥ 0, ?2 ≥ 0, ? > 0 is
always fulfilled.
a) Show that the associated indifference curves show a strictly
convex to the origin.
b) Please identify the Marshall demand functions ?1(?,
?) and ?2(?, ?).
(c) Please indicate the indirect utility function ?(?, ?) What does
it say?
d) What degree of homogeneity does the indirect utility function
exhibit? What does this mean economically?
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