# Cobb-Douglas and Logarithm Utility Functions

Suppose I have a consumer with a utility function $$U(x,y) = x^\alpha y ^{1-\alpha}$$ where $$a \in (0,1)$$. Suppose this consumer has wealth $$w$$ and the prices for $$x$$ and $$y$$ are $$p_x$$ and $$p_y$$ respectively. I have already set up budget constraints, calculated demand and expenditure functions.

But now I am given another utility function $$\alpha \log x + (1-\alpha) \log y$$. Supposedly I can calculate the demand function for this without needing to do further calculation. I don't see how though. What property of logarithms are useful here? I know obviously the definition of a logarithm, but I haven't seen it in this context and am confused what kind of math I should apply to it to find a demand function. Is this just arithmetic? Is it calculus? What is pertinent here to solving this problem?

Utility functions are invariant with respect to positive monotonic transformations (PMT). Take $U(x,y)=x^\alpha y^{1-\alpha}$, and let $V(x,y)=\log(U(x,y))$ be a PMT of $U$. Thus $V$ and $U$ both represent the same preference, and thus demand functions for $x$ and $y$ are the same.
• @StanShunpike: Utility functions are used to represent preferences, and a preference is an order on some given set of alternatives. Let $a,b$ be two consumption bundles, and a consumer prefers $a$ to $b$. We can use real numbers to record this order of preference. Thus $a$ and $b$ are each associated with a utility number, e.g. utility of $a$ is $3$ and that of $b$ is $1$. But the choice of $3$ and $1$ is arbitrary; we could very well let $u(a)=17$ and $u(b)=15$, or whatever, as long as they satisfy $u(a)>u(b)$, i.e. to be consistent with the preference it represents: $a$ is preferred to $b$. Jan 14, 2015 at 3:37
As already mentioned before the result of performing utility maximization is invariant under monotone transformations in the following sense. Let the demand $x^{*}(p,w)=\arg\max_{x\in B(p,w)}u(x)$, as with all optimization problems $x^{*}(p,w)=\arg\max_{x \in B(p,w)}V(u(x))$, where V is a monotone map. Notice that the value function that is $u(x^{*}(p,w))\neq V(u(x^{*}(p,w)))$ is different in the two cases but we typically do not care about this object since the utility has only ordinal information.