Exercises

  • 1. Given a commodity bundle (x)   =   (x 1, x 2,…, x 5) and the vector of prices (p)   =   (£ 20, £ 5, £ 2, £ 4, £ 10) under the cardinal approach, assuming the additive property of total utility function, solve the following consumer problem:
  • max { x } U ( x ) = max { x i } ∑ i = 1 5 U ( x i )
    image
  •     where U ( x i ) = x i image and given a budget constraint of £ 1000.
  • Figure 6.13-7 Graphical solution for player A: max point on the lower boundary segment.

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