Finding Marshallian Demand without Lagrange

economicslagrange multiplieroptimizationutility

I need to find Marshallian demand for goods x and y (in terms of $P_x, P_y,$ and $I$) with the following utility function: $$U(x,y) = x + 10y – y^2$$ and general budget constraint $$I = P_xx + P_yy$$ I've already attempted to use the Lagrangian method to find both functions. For $x^m$ I get $$x^m = I/P_x – 10P_y/P_x + P_y^2/P_x^2$$ by utilizing the relationship between the MRS and the price ratio: $$\frac{MU_x}{MU_y} = \frac{1}{(10-2y)} = \frac{P_x}{P_y}$$ which gives me
$$y = \frac{10P_x-P_y}{2P_x}$$ which can then be substituted into the budget constraint to yield the above $x^m$, after some algrebra.

However, and this is the main issue, since $MU_x = 1$, I have hit a roadblock in attempting to solve for $x$ from the MRS/price ratio, so as to substitute it into the budget function to find $y^m$ like I normally would with the Lagrangian method. Is there another method of finding Marshallian demand? Or am I simply not applying the Lagrangian method correctly?

Best Answer

Hint: You solved the equation incorrectly.

$$\frac{1}{(10-2y)} = \frac{P_x}{P_y}$$

Flipping numerators and denominators.

$$10-2y = \frac{P_y}{P_x}$$

$$10-\frac{P_y}{P_x} = 2y$$

$$y=5-\frac{P_y}{2P_x}$$

Then $$x=\frac{I-P_y\cdot y}{P_x}=\frac{I}{P_x}-\frac{P_y}{P_x}\cdot y$$

Inserting the expression of $y$

$$x=\frac{I}{P_x}-\frac{P_y}{P_x}\cdot \left(5-\frac{P_y}{2P_x}\right)$$

$$x=\frac{I}{P_x}-\frac{5P_y}{P_x}+\frac{P_y^2}{2P_x^2}$$