Mathematical presentation of utility maximisation, Microeconomics

Assignment Help:

Mathematical Presentation of Utility maximisation:

Consumer's objective is to maximise her utility by solving UMP. To solve UMP, we set the Lagrange function of the corresponding problem, which is,    L(x1, x2) = U(x1, x2) + λ (M-p1x1-p2x2) Our objective is to maximise this Lagrange function by choosing x1, x2 and λ. For that we differentiate the Lagrange function by x1, x2 and  λ, and set all equal to zero.  

 

547_Mathematical Presentation.png

is the slope of the indifference curve and  p1/p2 is the slope of the budget line. So, at equilibrium we have a slope of the indifference curve that is equal to the slope of the budget line. Again, from equation (f3) we get M = p1x1+p2x2, so budget equation holds with equality sign.   


Related Discussions:- Mathematical presentation of utility maximisation

What is use of analytical tools in the modern economics, What is use of ana...

What is use of analytical tools in the modern economics? Analytical Tools: Modern economics also gives different powerful analytical tools which are usually specified by geo

Indifference curve and budget line, how the increase in price will affect c...

how the increase in price will affect consumer''s ability to maximise satisfaction?

Macro , Suppose that nominal interest income is taxed at a rate of 30%. Cal...

Suppose that nominal interest income is taxed at a rate of 30%. Calculate the before-tax real interest rate and the after-tax real interest rate if the nominal interest rate is 6%

Why expect that the inflation rate to accelerate, 1) The Economy cannot be ...

1) The Economy cannot be considered fully employed unless the measured unemployment rate is below 1%. Agree or disagree and explain your answer in a paragraph. 2) A) Why would y

Law of demand, Give two level of incomes 100$ and 150$ DRAW demand curve fo...

Give two level of incomes 100$ and 150$ DRAW demand curve for individual a & b and then draw market demand curve for these two different kind of income

Define the production terminology in short, Define the production terminolo...

Define the production terminology in short. Production Technology: Production is the procedure of transforming inputs to outputs. Characteristically, inputs consist of labor

Sales revenue, how advertisement affects the sales revenue of a form

how advertisement affects the sales revenue of a form

Determination of exchange rates, DETERMINATION OF EXCHANGE RATES: When...

DETERMINATION OF EXCHANGE RATES: When we study the determinants of exchange rates, we must distinguish between long run determinants and short run because the determinants in

Production theory, why does gap between the ATC curve and the AVC curve dec...

why does gap between the ATC curve and the AVC curve decreases as the level of output increases

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd