4. Constrained Optimisation

Question 1

What is the bliss point?

Answer 1

The point at which the consumers utility reaches a max

Question 2

What 2 possibility do we need to consider in constrained optimisation?

Answer 2

• income is larger than the price of the widget times the number of widgets required to reach bliss point
  -income is smaller than the price of the widget times the number of widgets required to reach bliss point

Question 3

What is lambda equal to in the Lagrangian?

Answer 3

The change in the utility of the consumer after an incremental change in income.

Question 4

What is lambda equal to in the unconstrained problem

Answer 4

0