1. Daniel wants to retire in Jerusalem. He consumes food and clothing. In Jerusalem, food costs $10 per unit and clothing costs $5 per unit. His utility function is U(F,C) = F²C, where F and C are Daniel's units of food and clothing consumption. a) What is Daniel's optimal retirement consumption bundle if he wants to have a utility of 1000? (6 pts.) b) How much does he have to spend to keep the utility at 1000? c) How much does Daniel have to spend if he wants his utility to be U, and food and clothing cost PF and Pc? Express your answer in the form of expenditure function E(U, PF, PC)? d) If Daniel wants to keep his utility at U, and prices are unknown (PF and PC), what is the hicksian demand?
1. Daniel wants to retire in Jerusalem. He consumes food and clothing. In Jerusalem, food costs $10 per unit and clothing costs $5 per unit. His utility function is U(F,C) = F²C, where F and C are Daniel's units of food and clothing consumption. a) What is Daniel's optimal retirement consumption bundle if he wants to have a utility of 1000? (6 pts.) b) How much does he have to spend to keep the utility at 1000? c) How much does Daniel have to spend if he wants his utility to be U, and food and clothing cost PF and Pc? Express your answer in the form of expenditure function E(U, PF, PC)? d) If Daniel wants to keep his utility at U, and prices are unknown (PF and PC), what is the hicksian demand?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter6: Consumer Choices
Section: Chapter Questions
Problem 7RQ: Would you expect marginal utility to rise or fall with additional consumption of a good? Why?
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Daniel wants to retire in Jerusalem. He consumes food and clothing. In Jerusalem, food costs $10 per
unit and clothing costs $5 per unit. His utility function is U(F,C) = F²C, where F and C are Daniel's
units of food and clothing consumption.
a) What is Daniel's optimal retirement consumption bundle if he wants to have a utility of 1000? (6
pts.)
b) How much does he have to spend to keep the utility at 1000?
c) How much does Daniel have to spend if he wants his utility to be U, and food and clothing cost PF
and Pc? Express your answer in the form of expenditure function E(U, PF, PC)?
d) If Daniel wants to keep his utility at U, and prices are unknown (PF and PC), what is the hicksian
demand?
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