Working with Cobb Douglas preferences Milton's utility function: Q&A

c= 1 PriceCorn= $1.00 U = c*ln(Qc) + b*ln(Qb) Q1

b= 4 PriceBeans= $0.50 B 100 Q2
e percentage offf for green and
Income= $50 a 90 0.05 blue indifference curves Q3
Utility Maximizing Consumption Choice n Q4
s 80
QCorn= 10.0 amount spent on corn $ 10.00
70
Q5
QBeans= 80.0 amount spent on beans $ 40.00 Q6
60
Utility= 19.8 Q7
50
Price
C,B of Corn
combinBudget UmaxMilton's demand 18.8
Utoo low U20.822
for corn
too high C Pcorn
100 $ (100.00)
$5.00 44.9873060152 35.1103766 57.6427227 40 1 10
75 $ (50.00) 48.3420063577 37.728555 61.9411366 1.33333 7.5
56.25 $ (12.50)
$4.50 51.946866476 40.5419707 66.560083 1.77778 5.625
42.1875 $ 15.63 55.8205407676 43.5651827 71.5234638 2.37037 4.21875
31.640625
$4.00 $ 36.72 59.983074687 46.8138354 76.8569636 3.16049 3.164063
23.730469 $ 52.54 64.4560084769 50.30474 82.5881822 4.21399
30 2.373047
17.797852
$3.50 $ 64.40 69.2624886347 54.055961 88.7467773 5.61866 1.779785
13.348389 $ 73.30 74.4273876901 58.0869103 95.3646184 7.49154 1.334839
10.011292
7.5084686 $
$3.00 $ 79.98
84.98 79.977432916 62.4184473
85.9413446359 67.0729866 102.475952
110.117576 9.98872
13.3183 1.001129
0.750847
5.6313515
$2.50 $ 88.74 92.3499848463 72.0746147 118.329036 20
17.7577 0.563135
4.2235136 $ 91.55 99.2365169201 77.4492138 127.152825 23.677 0.422351
3.1676352
$2.00 $ 93.66 106.636577221 83.2245964 136.634602 31.5693 0.316764
2.3757264 $ 95.25 114.588459515 89.4306488 146.823435 42.0924 0.237573
1.7817948
$1.50 $ 96.44 123.133313128 96.0994862 157.772049 56.1232
10 0.178179
1.3363461 $ 97.33 132.315355894 103.265618 169.537099 74.8309 0.133635
1.0022596 $ 98.00 142.182102962 110.966128 182.179469 99.7746 0.100226
0.7516947
$1.00 $ 98.50 152.784612686 119.240865 195.76458 133.033 0.075169
0.563771 $ 98.87 164.177750838 128.132648 210.362731 177.377
0 0.056377
0.4228283 $ 99.15
$0.50 176.420474525 137.687491 226.049466
0.3171212 $ 99.37 189.576137282 147.954838 242.905959
0.2378409
$0.00 $ 99.52 203.712816915 158.98782 261.01944 0 10 20 30 40 50 60 70 80 90 100
0.1783807 $ 99.64 218.903667784 170.843531Quantity280.483642
0 5 10 15 20 25 30 35 40 of 45 Corn
50 Corn
 baseline c=1,b=4

1 1
4 0.5
50

Page 2
Name:
Instructions: Type answers
The baseline in the
demand yellow
curve spaces
implies that provided.
Milton is always willing to spend $10 on corn. Explain why this is the
Q1: case.
A1:
Q2: As you varied the price of corn in cell D2, is this represented in the demand diagram as a shift in the demand
curve or a movement along the demand curve?
A2:
Q3: Does Milton consider corn and beans to be substitutes, complements, or independent based on the demand relation
you derived for corn? Verify your answer using calculus and by varying the price of beans in cell D3.
A3:
Q4: Solve the general Cobb Douglas utility maximization problem described in the comment for cell C1. Specifically,
derive the demand for corn as a function of the parameters b, c, and constraints Pb, Pc, and I.
A4:
Q5:
Suppose c=2, b=8, the price of beans was $.50 and you had $50 to spend on corn and beans. Would your demand
for corn differ from Milton's? Explain. Verify your answer both algebraically, and by plugging the values for c
and b into the worksheet.
A5:
Q6: Provide a general answer for when you would spend half of your income on corn and half of your income on
beans. Verify your answer both algebraically, and using the worksheet.
A6:
What is the income elasticity of demand for corn in this instance? Explain algebraically, and verify using the
Q7: worksheet. (When answering the question, do not bother searching for a partial derivative symbol; use a d
instead.)
A7: