(All answers in Chapter 4)
Short questions:
Define “Utility Maximization” and discuss the two limitations of utility maximization with examples.
What is the first-order function for a maximum utility? Draw a graph demonstrating utility Maximization and explain underlying concepts.
Explain the Lump Sum Principle, give an example of it, and draw the related graph.
Discuss the three properties of expenditure functions.
Problems:
On a given morning, Tom enjoys the consumption of cake (c) and bread (b) according to the following function:
U (c, b) = 20c- c² + 18b-3b²
How many pieces of cakes and breads does he consume during a morning? (Cost is no object to Tom)
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