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Advanced Microeconomics/Homogeneous and Homothetic Functions
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Homogeneous & Homothetic Functions
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