Statistics Solutions

(See Steps) Consider a consumer with preferences U(x_1, x_2)=x_1^2 x_2^2, and income m. The prices of the goods are p_1, p_2. Which bundles are in the budget

Question: Consider a consumer with preferences \(U\left(x_{1}, x_{2}\right)=x_{1}^{2} x_{2}^{2}\), and income \(m\). The prices of the goods are \(p_{1}, p_{2}\).

  1. Which bundles are in the budget set but not on the budget line? can any of these bundles solve the consumer's choice problem? explain.
  2. Which bundles are on the budget line?
  3. Solve for the optimal bundle \(\left(x_{1}^{*}, x_{2}^{*}\right)\).
  4. How would your answer to c. change if preferences are given by \(U\left(x_{1}, x_{2}\right)=x_{1} x_{2}\). Explain.

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Deliverable: Word Document


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