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A Consumer Has Preferences Given by the Constant Elasticity of Substitution

Question 23

Essay

A consumer has preferences given by the constant elasticity of substitution utility function:
U(q1,q2)= (q1.5 + q2.5)2
a.Write the Lagrangian for the consumer's maximization problem.
b.Use the Lagrangian to solve for the optimal quantities in terms of the prices and income.

Correct Answer:

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a.L = (q1.5 + q2.5)2 + [Y - p1q1 - p2q2]
b.The firs...

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