February 2016
Beginner to intermediate
500 pages
33h 40m
English
Content preview from Managerial Economics and Strategy, 2/eBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Appendix 4B The Consumer Optimum
We can derive Equation 4.6 using calculus. Lisa’s objective is to maximize her utility, U(B, Z), subject to (s.t.) a budget constraint:
(4B.1)
where B is the number of burritos she buys at price [&p_{B},&] Z is the number of pizzas she buys at price [&p_{Z},&] Y is her income, and [&Y|=|p_{B}B|+|p_{Z}Z&] is her budget constraint. This mathematical statement of her problem shows that her choice variables are B and Z, which appear under the “max” term in the equation.
Because we cannot directly solve a constrained maximization problem, we want to convert Equation 4B.1 into an unconstrained problem by substituting the budget constraint into the utility function. Using algebra, ...
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