a.Based on the utility function and budget constraints stated above, construct the sequential Lagrange function.
b.Based on the Lagrange function in part a, compute the two first-order conditions with respect to c1 and c2.
c.Based on the Lagrange function in part a, compute the first-order condition with respect to c2DUR .
d.Using the first-order conditions from part b, eliminate any and all Lagrange multipliers contained in the result in part c. Provide important algebraic steps.
e.Based on the result in part d, solve for the period-1 price of durable consumption goods, which should expressed as
p1DUR =______
in which the term in ellipses (“…”) on right-hand side is for you to determine.
f.Briefly describe the economic interpretation for the pricing expression obtained in part e. (Note: “economic interpretation” is not simply a verbal restatement of the mathematics.