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

Potentials of productivity growth, Potentials of Productivity Growth: ...

Potentials of Productivity Growth: It needs to be noted that growth in productivity witnessed in the past are an average rate at the All-India level. There are considerable re

Short-run economic decisions, Weston Industrial Manufacturing Products ("WI...

Weston Industrial Manufacturing Products ("WIMP") has the capability to produce a variety of industrial products, including a number of types of widgets. In the past, WIMP has manu

Second Best, What is the theory of second best

What is the theory of second best

Demand curves, draw demand curve for a-phone explain how the graph, price ,...

draw demand curve for a-phone explain how the graph, price ,and quantity demand will change if there is an overall increase in income.

Optimal consumption bundle and marginal utility per dollar, What is the opt...

What is the optimal consumption bundle and marginal utility per dollar? The optimal consumption bundle is the consumption bundle which maximizes a consumer's total utility sp

Functions of money in any modern economy, Functions of money in any modern ...

Functions of money in any modern economy: A medium of exchange: Money facilitates the exchange of goods and services because, people exchange the goods and services they produ

Market or equilibrium price - demand and supply, Suppose the total demand f...

Suppose the total demand for wheat and the total supply of wheat per month in a market are as follows: a. What will be the market or equilibrium price? What is the equilibrium q

Financial securities, Securitization: A process in that financial relations...

Securitization: A process in that financial relationships (like loans) are converted into financial securities or assets (like bonds) that can be bought and re-sold in securities m

Micro, a. Suppose the demand for saline solution is perfectly inelastic for...

a. Suppose the demand for saline solution is perfectly inelastic for contact lens wearers. If the government imposes a tax on saline solution, what occurs? Be sure to tell what hap

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