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An individual purchases quantities a, b, and c of three different commodities whose prices are p, q, and r, respectively. The consumer spends m dollars, where m > 2p, and the utility function is given by

U(a,b,c)= a+ln(bc)

Show that the optimal expenditure on the second and third good is equal to p (that is, show that when utility is maximized, the expenditure on each of the second and the third good is equal to p).

Find a, b, and c when utility is maximized (you may assume Lagrange multipliers corresponds to the maximum solution).

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91723074

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