1. Pat's preference is given byu(I1, 12) = min {r1, 12}.Currently, prices are p = (p1, P2) and Pat's income is I. Is he better off if theprice of good one is halved so that p= (, P2), or if his income is doubled to21? 2. A firm that is located in country H, where price levels are p = (1,2), needs tosend one of its two employees to its branch in country F. However, in countryF price levels are p = (3, 1), so the firm will have to pay additional salary toensure that its employee is equally well-off in country F as she was in countryH. Suppose the utility functions of the two employees areu1(1,72) = In r1 + Inr2 and uz(1,12) = 11 + 12.The two employees are otherwise identical, including current salary. If thefirm wants to minimize the additional salary it needs to pay, which employeeshould it send? Explain.

"Since you have asked multiple questions, we will answer only first question for you. If you have…

1. Pat's preference is given by u(11, 22) = min {1,12}. Currently, prices are p = (p1, P2) and Pat's income is I. Is he better off if the price of good one is halved so that p= (. P2), or if his income is doubled to 21? %3D

1. Pat's preference is given by u(11, 22) = min {1,12}. Currently, prices are p = (p1, P2) and Pat's income is I. Is he better off if the price of good one is halved so that p= (. P2), or if his income is doubled to 21? %3D

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. Pat's preference is given by
u(I1, 12) = min {r1, 12}.
Currently, prices are p = (p1, P2) and Pat's income is I. Is he better off if the
price of good one is halved so that p= (, P2), or if his income is doubled to
21?

2. A firm that is located in country H, where price levels are p = (1,2), needs to
send one of its two employees to its branch in country F. However, in country
F price levels are p = (3, 1), so the firm will have to pay additional salary to
ensure that its employee is equally well-off in country F as she was in country
H. Suppose the utility functions of the two employees are
u1(1,72) = In r1 + Inr2 and uz(1,12) = 11 + 12.
The two employees are otherwise identical, including current salary. If the
firm wants to minimize the additional salary it needs to pay, which employee
should it send? Explain.

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