(Answered) 1 consider the ces utility functionnbspnbsp u axdd byd d

Economics

1. Consider the CES utility function: U = a(X^d/d) + b(Y^d /d) if d¹ 0 and U= a lnX + b lnY if d=0.

a. Assuming d¹ 0, derive the equation for MU_x and MU_y. Find MRS.

b. What sort of preferences are exhibited when d = 1? ...when d = 0? ...when 0d?

2. Assume that U =xy and that P_x =$10, P_y=$5, and I=$100. Use the Lagrange method to find the first-order conditions and the optimal values (i.e., utility maximizing values) of x and y.

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