Utility Maximization with a Kinked Budget Constraint

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This Demonstration shows the utility maximization problem and its solutions for a kinked budget line.
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Contributed by: Kazuki Kumashiro (December 2015)
Open content licensed under CC BY-NC-SA
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The model is as follows.
Utility Function
Budget Constraint
if
if
The difference between the buying price and selling price
causes a kinked budget constraint.
When the demand is determined on the kinked point, small changes in prices do not affect the demand. This is why the demand functions may not be smooth.
In this Demonstration, assume that is always greater than
. This assures that the budget set is convex—that is, the solution is determined uniquely.
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