Suppose the consumerworker values two things a consumption

Reference no: EM13378713

Suppose the consumer/worker values two things: a consumption good C and leisure L. Suppose that there are 24 hours in a day and the consumer/worker has a utility function U (C, L) = ln C + L The price of consumption is P and the wage rate is w: You donít need any more prices. Note that this is a conceptually difficult question with easy math. The difficulty in the problem is in setting it up correctly, conceptualizing it correctly and interpreting it correctly.

1. Write down the formula for the consumer/workerís income (5 points)

2. Set up the utility maximization problem by writing the Lagrangian (5 points)

3. Solve for the Marshallian Demand for L* (i:e: solve for L*) (5 points)

4. Take the derivative of L* with respect to w: Is the result surprising (it should be!)? How is this problem different from the standard utility maximization problem (hint: there is an extra effect of w here - explain what it is and how it works). (5 points)

5. Extra Credit: Suppose now the utility function changes to U (C, L) = 25 ln C + L Solve again for the Marshallian Demand for L: Compare your results with part 3 and explain intuitively.

Reference no: EM13378713

Questions Cloud

This assignment is designed to not only to give students an : this assignment is designed to not only to give students an opportunity to practice concepts learned in class but also

Suppose a consumer derives utility from consuming two goods : suppose a consumer derives utility from consuming two goods x1 and x2. her utility function is given as u x1 y1 8

Assume that joe derives utility based on the following : assume that joe derives utility based on the following utility function uxy x10.6 x20.610.6if joes income is 5040 a

Inflation problems search the internet for the 2013 : inflation problems. search the internet for the 2013 economic report of the president and use the gdp deflator price

Suppose the consumerworker values two things a consumption : suppose the consumerworker values two things a consumption good c and leisure l. suppose that there are 24 hours in a

Q choose an indian company of your choice that has adopted : q. choose an indian company of your choice that has adopted balance score card and detail on it.q.what is a cash

Nbspq1a list the accounting standards issued by icai : nbspq.1a. list the accounting standards issued by icai. nbspnbspnbspnbspnbsp 1b. write short notes of ifrsnbspq.2

This problem is based on the specific factors model : this problem is based on the specific factors model. consider the economy of the shire that produces cereals and

An economic bad is something you dont want to consume ie : an economic bad is something you dont want to consume i.e. less bad is better. define an economic bad mathematically

User Account

All Pages