2
$\begingroup$

Suppose a utility function $u=x_1^ax_2^b$ with $a+b=1$. The following formula finds the values for $x$:

$x_1 = \frac{am}{p_1}\\ x_2 = \frac{bm}{p_2}$

But what if the utility function looks like $u=cx_1^adx_2^b$ so has additional factors bevore $x_i$? Can the formula above be edited accordingly?

$\endgroup$
3
  • $\begingroup$ Certainly, and it is trivial. Just perform the same steps through which you arrived at the two optimal equations. $\endgroup$ Apr 8, 2015 at 19:02
  • $\begingroup$ @AlecosPapadopoulos: Actually, I just found the equations on Wikipedia, without further explanations. $\endgroup$ Apr 8, 2015 at 21:01
  • $\begingroup$ @BKay: I didn't mean I found the answer to my question on Wikipedia, but the equations in their final form. There was no further explanations about how to arrive at those equations. $\endgroup$ Apr 8, 2015 at 21:47

2 Answers 2

1
$\begingroup$

$u=cx_1^adx_2^b$ is equivalent to $u=(cd)x_1^ax_2^b$ the values of $c$ and $d$ do not impact the optimal bundles. I'll provide complete working on your other question (Marshallian Demand for Cobb-Douglas).

$\endgroup$
0
$\begingroup$

No impact because the constant will be eliminated after you do FOC's/first order conditions when you divide FOC of X1 by FOC of X2 to simplify for x1 and x2

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.