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max u( x1 , x 2 )=x 1 x 2
x1 , x 2
s . t . m p1 x 1 + p2 x 2
Goal
max Utility
200
40
35
30
Endogenous Variables
x1
20
x2
10
x2
25
20
15
Exogenous Variables
p1
2
p2
3
m
100
c
1
d
1
Constraint
price of x1
price of x2
income
exponent for x1
exponent for x2
10
9
9
9
5
0
0
10
20
30
x1
MRS at x1, x2
-0.500
40
50
60
40
50
60
Axes locked down.
Double-click an axis to unlock the scale.
U
step
x1
8
11
14
17
20
23
26
29
32
U = 200
200
x2
25
18.18182
14.28571
11.76471
10
8.695652
7.692308
6.896552
6.25
x2/x1
-2.272727
-1.298701
-0.840336
-0.588235
-0.434783
-0.334448
-0.265252
-0.215517
dx2/dx1
x1 budget c
-3.125
0
-1.652893
5
-1.020408
10
-0.692042
15
-0.5
20
-0.378072
25
-0.295858
30
-0.237812
35
-0.195313
40
45
50
change U
x2 budget constraint
33.333333
30
26.666667
23.333333
20
16.666667
13.333333
10
6.6666667
3.3333333
0
x1
8
11
14
17
20
23
26
29
32
100
U = 300
300
x2
37.5
27.27273
21.42857
17.64706
15
13.04348
11.53846
10.34483
9.375
x2/x1
-3.409091
-1.948052
-1.260504
-0.882353
-0.652174
-0.501672
-0.397878
-0.323276
dx2/dx1
-4.6875
-2.479339
-1.530612
-1.038062
-0.75
-0.567108
-0.443787
-0.356718
-0.292969
x1
8
11
14
17
20
23
26
29
32
U = 100
100
x2
12.5
9.090909
7.142857
5.882353
5
4.347826
3.846154
3.448276
3.125
x2/x1
-1.136364
-0.649351
-0.420168
-0.294118
-0.217391
-0.167224
-0.132626
-0.107759
dx2/dx1
-1.5625
-0.826446
-0.510204
-0.346021
-0.25
-0.189036
-0.147929
-0.118906
-0.097656
Corner
Questions
Open Word and answer the following questions. Save the document and print it when you are done.
1) Find the optimal solution, using Solver, for the problem in the OptimalChoice sheet.
2) Insert a new sheet in the workbook (execute Insert: Worksheet) and solve the same problem as in the OptimalChoice sheet
except that the utility function is ln U = c ln x1 + d ln x2.
Take a picture of the cells in your worksheet that includes the goal, endogenous variables, exogenous variables, and constrain
WARNING: Do not simply copy the cells from the OptimalChoice sheet and paste them in your new sheet because there will b
Excel will continue to use the named cells from the OptimalChoice sheet instead of the new sheet.
It is recommended that you set up the optimization problem on your new sheet "by hand"while a bit tedious, this is good pra
3) Compare the x1*, x2*, and U* from the OptimalChoice and ln U problems. What effect does changing the utility to natural
log have on the solution? Why does the natural log transformation have this effect?
4) Return to your natural log version of the utility function sheet and change c to 2. Solve the problem via Solver and mathema
Hint: Remember that dlnx/dx = 1/x dx so, e.g., dlnU/dx1 = c/x1.
Take a picture of Solver's answer and use Word's Equation Editor as needed to show your answer via the analytical approach.
5) Compare the x1* and x2* from problems 3 and 4. Do the different decisions make common sense? Explain.
6) Since U* is higher for the consumer in question 4 than in question 3, can we conclude that the Q4 consumer is better off tha
your new sheet because there will be a serious Named cells confusion.