Original scientific paper

https://doi.org/10.17535/crorr.2015.0021

A non-calculus approach to solving the utility maximization problem using the Cobb-Douglas and CES utility function

Vedran Kojić orcid.org/0000-0002-6802-1719 ; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia

Abstract

This paper proposes a new original non-calculus method to solving the utility maximization problem using the Cobb-Douglas and the CES utility functions, and incorporating the weighted arithmetic-geometric-mean inequality (weighted AM-GM inequality) and Jensen’s inequality. Instead of using calculus, the substitution method or the Lagrange multiplier method, the maximum utility and global maximizer for the case of the Cobb-Douglas and CES utility functions are derived in a direct way. The new method does not require checking first and second order conditions, which the substitution method and the Lagrange multiplier method normally require.

Keywords

constrained optimization; Cobb-Douglas utility function; CES utility function; non-calculus approach; mathematical inequalities

Hrčak ID:

138613

URI

https://hrcak.srce.hr/138613

Publication date:

30.3.2015.

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