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Obtaining analytical solutions to utility maximization problems

asked 2020-07-15 11:03:41 -0600

EconJohn gravatar image

A while back I posted asking about Solving Lagrangians in Sage. The numeric solutions I found to be extremely useful for understanding where exactly a maximum/ minimum lies. This is given by the following code:

x, y, l = var('x, y, l')
U = x^7/10 * y^3/10; U
m = 2*x+2*y; m
solve(m == 4000, y)
L = U - l * (m - 4000); L
dLdx = L.diff(x); dLdx
dLdy = L.diff(y); dLdy
dLdl = L.diff(l); dLdl
solve([dLdx == 0, dLdy == 0, dLdl == 0], x, y, l)

Im wondering however if there is a way to get an analytical solution? In the context of a utility maximization problem it would be a set of demand equations as a function of prices and Income. On paper we can do this easily in this context however it seems pretty difficult for me to understand.

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answered 2020-07-15 11:50:13 -0600

EconJohn gravatar image

updated 2020-07-15 11:52:27 -0600

With a little bit of playing with the code I found that the best way to solve this problem analytically is by specifying prices and income in the var() command. the code I've used is:

  x, y, l, p, q, R= var('x, y, l, p, q, R')
  U = x^7/10 * y^3/10; U
  m = p*x+q*y; m
  solve(m == R, y)
  L = U - l * (m - R); L
  dLdx = L.diff(x); dLdx
  dLdy = L.diff(y); dLdy
  dLdl = L.diff(l); dLdl
  solve([dLdx == 0, dLdy == 0, dLdl == 0], x, y, l)


[[x == 7/10*R/p, y == 3/10*R/q, l == 22235661/100000000000*R^9/(p^7*q^3)], [x == 0, y == R/q, l == 0], [x == R/p, y == 0, l == 0]]

Where p,q and R are the prices of good x and good y and an arbitrary income level.

Very useful!

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Asked: 2020-07-15 11:03:41 -0600

Seen: 150 times

Last updated: Jul 15