Answer to Question #287933 in Economics for Zdeva

Question

The utility function of a consumer from consumption of  Q1 units of good x1 and Q2  units  of good  is given by U(Q1,Q2) =5 lnQ1 + 2 lnQ2 , while the unit price of good x1 is 4 dollars while that of good x2 is 2. Find the combination of  Q1 and  Q2 which will maximize the utility function with the budget constraint of 28 dollars. 

Required 

a) Write the mathematical model.  

b) Write the Lagrange function. 

c) Test the output level using second order condition. 

d) Find the Lagrange multiplier and interpret it.

Answer 1

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