(Solved):Armando’s preferences over goods can be represented by the following utility function: Armando faces prices and has income a. Find Armados’s Marshallian demand functions, View Answer

Question:

Armando’s preferences over goods can be represented by the following utility function: Armando…

Armando’s preferences over goods x=(x1,x2)x=(x1,x2) can be represented by the following utility function:

u(x)=ln(x1−b)+ln(x2)u(x)=ln(x1−b)+ln(x2)

Armando faces prices p=(p1,p2)>>0p=(p1,p2)>>0 and has income m>p1b>0m>p1b>0.

a. Find Armados’s Marshallian demand functions, x1(p,m)x1(p,m) and x2(p,m)x2(p,m). Why is it important that m>p1bm>p1b? What is the interpretations of the coefficient b? Do the demand functions

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