How many fish should robinson catch

Assignment Help Microeconomics

Reference no: EM132208404

Question: Robinson Crusoe has decided that he will spend exactly 10 hours per day searching for food. He can spend this time looking for coconuts (C) or fish (F). He is able to catch 2 fish or find 3 coconuts in 1 hour. Robinson's utility function is U(F,C) = 3F0.6C0.3.

a) How many fish should Robinson catch and how many coconuts should he find so that his consumption maximizes his utility?

b) Illustrate the solution with a graph.

c) One day a native inhabitant of another island arrives on Robinson's island. The visitor offers Robinson trade of 3 fish for 1 coconut. However, trade is not free: regardless of the amounts traded, the trade costs 1 fish, which must be paid prior to the exchange.

1. Will Robinson decide to trade? Justify your answer.

2. What will Robinson produce?

3. What will Robinson consume?

4. If Robinson decides to trade, calculate his consumption levels of the two goods, and compare his prior-trade and post-trade utility levels.

d) Now assuming that Robinson's production possibility frontier is given by 100 = (F2)/4 + (C2)/9, answer point c again.

Reference no: EM132208404

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