Suppose u(x1, x2) = ln x1 + x2, and p1 = p2 = 1. (a) Find the optimal consumption bundle analytically when income is m > 1. (b) What is the optimal consumption bundle for m < 1? (Hint: Draw a figure of consumer's choice problem). (c) Draw the income offer curve. (d) Draw Engel curves for commodities 1 and 2 in two different figures.
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First, we need to find the utility function. Given that u(11,12) is in €1 + T2, we can write the utility function as: \(u(x_1, x_2) = x_1 + T x_2\) Show more…
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