Q1. Suppose a consumer has utility function (u) = xy where x and y are amounts of two commodities that this consumer consume. Suppose this consumer's income is $120, price of good x is $1/ unit and the price of good y is $4/ unit.
Maximize utility for this consumer.
Use the bordered Hessian to test the second-order condition.
Q2. Given the total cost function: C = x2 + 2xy + 2y2 for a firm producing goods x and y. The firm must meet a production quota of 2x + 3y = 40.
Minimize cost for this firm.
Use the bordered Hessian to test the second-order condition.
Q3. A consumer wants to maximize utility u (x,y) subject to the constraint PxX +PyY = B where x and y are amounts of two commodities that this consumer consume. Suppose this consumer's income is B, price of good x is Px and the price of good y is Py. Assume that the second- order sufficient condition is met so lH¯l = lJl ≠ 0. Find dx/dPx.