Question 2 - Consider a consumer with utility function U = x1 + x2 12, where is the labor supplied, x₁ and x2 are the quantity of consumption for good 1 and 2 respectively. The price of good 1 and 2 are p₁ and p2 respectively (P1, P2 > 0). The consumer cannot spend more than its earning from working, and has no other source of income. The consumer has an hourly wage rate of w. In the short-run, the consumer has signed a work contract that the work hour is fixed at ī> 0. The consumer cannot consumer negative amount of quantity of goods. a) Write down the constraints faced by the consumer in the short run. b) Find the utility maximising quantity of consumption for good 1 and 2 in the short run. Assume p₁ > P₂• c) In the long run, the consumer could choose the labour supply 1, i.e. I is not fixed and is a choice for the consumer. The consumer cannot work more than 24 hours a day, and cannot work negative amount of hours. Find the utility maximising quantity of consumption and labour supply. Assume p₁ > P2 and w< 48p2. d) What are the economic assumption(s) implicit in the model? Discuss if they are reasonable assumptions.
Question 2 - Consider a consumer with utility function U = x1 + x2 12, where is the labor supplied, x₁ and x2 are the quantity of consumption for good 1 and 2 respectively. The price of good 1 and 2 are p₁ and p2 respectively (P1, P2 > 0). The consumer cannot spend more than its earning from working, and has no other source of income. The consumer has an hourly wage rate of w. In the short-run, the consumer has signed a work contract that the work hour is fixed at ī> 0. The consumer cannot consumer negative amount of quantity of goods. a) Write down the constraints faced by the consumer in the short run. b) Find the utility maximising quantity of consumption for good 1 and 2 in the short run. Assume p₁ > P₂• c) In the long run, the consumer could choose the labour supply 1, i.e. I is not fixed and is a choice for the consumer. The consumer cannot work more than 24 hours a day, and cannot work negative amount of hours. Find the utility maximising quantity of consumption and labour supply. Assume p₁ > P2 and w< 48p2. d) What are the economic assumption(s) implicit in the model? Discuss if they are reasonable assumptions.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
100%
Transcribed Image Text:Question 2
-
Consider a consumer with utility function U = x1 + x2 12, where is the
labor supplied, x₁ and x2 are the quantity of consumption for good 1 and 2
respectively. The price of good 1 and 2 are p₁ and p2 respectively (P1, P2 >
0). The consumer cannot spend more than its earning from working, and has
no other source of income. The consumer has an hourly wage rate of w.
In the short-run, the consumer has signed a work contract that the work
hour is fixed at ī> 0. The consumer cannot consumer negative amount of
quantity of goods.
a) Write down the constraints faced by the consumer in the short run.
b) Find the utility maximising quantity of consumption for good 1 and 2 in
the short run. Assume p₁ > P₂•
c) In the long run, the consumer could choose the labour supply 1, i.e. I is
not fixed and is a choice for the consumer. The consumer cannot work more
than 24 hours a day, and cannot work negative amount of hours. Find the
utility maximising quantity of consumption and labour supply. Assume p₁ >
P2 and w< 48p2.
d) What are the economic assumption(s) implicit in the model? Discuss if they
are reasonable assumptions.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education