A Consumer Has Preferences Given by the Constant Elasticity of Substitution

question 81

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.

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Definitions:

Exclusive Rights

Legal rights granted to individuals or firms, limiting others from reproducing, publishing, or selling particular goods or services.

Market Power

The ability of a company or entity to influence the price and production levels in a market.

Monopolists

Entities with exclusive control over the supply of a particular good or service, setting prices and output levels.

Output Effect

The change in total output caused by a new price level, in the context of supply and demand.