Finn has the following utility function:
U=√C*L
where C represents real consumption spending and L hours of leisure time consumed daily (i.e., T = 24). As a result, his first-order condition for utility maximization can be written as a simple ratio of the arguments in his utility function:
MRS=C/L
a) Show that Finn’s indifference curves will be convex to the origin (e.g., choose U = 10 and show that the resulting indifference curve is convex). Under what conditions will this result in a unique equilibrium? (HINT: a graph will definitely help here.)
b) Suppose Finn has $96 of nonlabour income each day (he comes from a wealthy family) and faces the minimum wage of $12 per hour. Set the price of consumption (P) equal to one, and do the following:
(i) Write down Finn’s budget constraint. Show his first-order condition for utility maximization.
(ii) Compute Finn’s optimal daily consumption of leisure (L*), hours of work (H*) and consumption of goods and services (C*).
Numbers and figures are an essential part of our world, necessary for almost everything we do every day. As important…
APPROVED BY CLIENTS
"assignmentexpert.com" is professional group of people in Math subjects! They did assignments in very high level of mathematical modelling in the best quality. Thanks a lot
Comments
Leave a comment