Advanced Microeconomics/Homogeneous and Homothetic Functions
Jump to navigation
Jump to search
Homogeneous & Homothetic Functions
[edit | edit source]For any scalar a function is homogenous if A homothetic function is a monotonic transformation of a homogeneous function, if there is a monotonic transformation and a homogenous function such that f can be expressed as
- A function is monotone where
- Assumption of homotheticity simplifies computation,
- Derived functions have homogeneous properties, doubling prices and income doesn't change demand, demand functions are homogenous of degree 0
- The slope of the MRS is the same along rays through the origin
Example
[edit | edit source]