Posted by Brett on Tuesday, September 18, 2007 at 7:58pm.
Ive been stuck on this forever now if someone could please walk me through it i was appreciate it:
1: Suppose John had a utility function of U=X^2/3Y^1/3 . Derive Johns demand function from his utility function showing all the necessary steps.
i know that the MUx=MUy and first i derive the equation to
then im stuck i don't know what hes asking or how to simplify it do i just solve for X and Y? help please!
- Economics - economyst, Wednesday, September 19, 2007 at 2:18pm
I remember how to do this as "one-to-one" mapping problem, which can be solved graphically.
Let me try to solve with calculas and algebra.
CAVEAT EMPTOR - let the buyer beware.
First its MUx/Px=MUy/Py or MUx/MUy = Px/Py.
MUx,MUy are the first derivitive of U.
MUx = (2/3)X^-1/3 Y^1/3
MUy = (1/3)Y^-2/3 X^2/3
Put MUx over MUy (i.e. MUx/MUy) then collapse like terms. That is:
MUx/MUy = 2Y/X = Px/PY
Thus: Px = 2PyY/X
Let Z = total (fixed income). The guy spends all his income on X and Y. So,
Z=PxX + PyY so PyY = Z-PxX substitute this into the equation above. Thus:
Px = 2(Z-PxX)/X = 2Z/X - 2Px soooooo
Px = (2/3)Z/X a nice little demand function
- Economics - Brett, Wednesday, September 19, 2007 at 8:43pm
Thank you soo much im a little confused with the simplification so MUx/MUy simplifies to 2y over x ? and for some reason i thought that it would have to end in a demand function of X = something
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