[1] What are the "choice variables and what are the "parameters' in this problem? What is the difference between them? [2] How do we know this problem has a solution? [3]

Explain the relevant Lagrangian function. [4] Explain the conditions that will characterize a KT-point. [5] Use the conditions in part [4] to find the optimal consumption bundle (r*, y), and the associated Lagrange multiplier X*. [6] Explain why z* and y* can be interpreted as "functions". [7] Find the partial derivative of z* with respect to each "parameter of the problem". [8] Explain the interpretation of each partial derivate you find in part [7]. [9] Find the "indirect utility function' V = u(x, y), and explain its interpretation. [10] Find the partial derivative of V with respect to M, and explain its interpretation.