Suppose two individuals (Smith and Jones) each have 1o hours of labor to devote to producing either ice cream (x) or chicken soup ( y). Smith's utility function is given by Us = x 0.3 y 0.7, whereas Jones' is given by UJ=xa 5 y a 5. The individuals do not care whether they produce x or y , and the production function for each good is given by x= 21 and y = 31 where l is the total labor devoted to production of each good. a. What must the price ratio, p x /p, be? b. Given this price ratio, how much x and y will Smith and Jones demand? Hint: Set the wage equal to 1 here. c. How should labor be allocated between x and y to satisfy the demand calculated in part (b)?

Suppose two individuals (Smith and Jones) each have 1o hours of labor to devote to producing either ice cream (x) or chicken soup ( y). Smith's utility function is given by Us = x 0.3 y 0.7, whereas Jones' is given by UJ=xa 5 y a 5. The individuals do not care whether they produce x or y , and the production function for each good is given by x= 21 and y = 31 where l is the total labor devoted to production of each good. a. What must the price ratio, p x /p, be? b. Given this price ratio, how much x and y will Smith and Jones demand? Hint: Set the wage equal to 1 here. c. How should labor be allocated between x and y to satisfy the demand calculated in part (b)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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