Advanced Microeconomics/Homogeneous and Homothetic Functions

Homogeneous & Homothetic FunctionsEdit

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

ExampleEdit