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    Maximise utility with the Lagrange method in this case.

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    Let U(x,y)= Ax^ay^b be the utility function of an individual. The individual has x hour leisure time per day and consumers y units of other goods. The individual works and is paid w $ per hour. The average price of the other goods is p $. We assume that the individual spends his/her total income i.e.

    py = w(24 - x)

    Use the Lagrange method to determine how many hours this individual works per day to maximize the utility.

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    Solution Preview

    To use the Lagrange Multiplier, we first set up the Lagrange equation.

    Λ = f(x,y) + λ[g(x,y) - c]. where f(x,y) is the function we want to maximize (or minimize), and g(x,y) = c is the constraint. λ is a free parameter.

    In our case, the function f(x,y) = A(x^a)(y^b), and the constraint is py = 24w - wx, or wx + py = 24w

    Λ = A(x^a)(y^b) + ...

    Solution Summary

    This solution explains how to maximize utility with the Lagrange method.