Suppose David is a busy CEO and has high levels of consumption (C) but relatively little...

 

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Suppose David is a busy CEO and has high levels of consumption (C) but relatively little leisure time (L). Mike, on the other hand, has a part-time job and therefore lots of leisure (L) with relatively little consumption (C). (a) Construct an Edgeworth Box (measuring Consumption on vertical axis, with Mike's origin at the bottom left). Indicate an endowment bundle (W) that fits the description of this problem. (b) David decides to hire a personal assistant, so that he can have more leisure time. Use indifference curves to illustrate a region in the graph where both David and Mike would benefit from Mike working for David as an assistant. Illustrate what an equilibrium would look like (E). Represent price ratio on your graph. (c) After the employment, both Divid and Mike do not want to change their labor contract. Is the new equilibrium point efficient? Explain. (d) Illustrate the contract curve in the box. Suppose David is a busy CEO and has high levels of consumption (C) but relatively little leisure time (L). Mike, on the other hand, has a part-time job and therefore lots of leisure (L) with relatively little consumption (C). (a) Construct an Edgeworth Box (measuring Consumption on vertical axis, with Mike's origin at the bottom left). Indicate an endowment bundle (W) that fits the description of this problem. (b) David decides to hire a personal assistant, so that he can have more leisure time. Use indifference curves to illustrate a region in the graph where both David and Mike would benefit from Mike working for David as an assistant. Illustrate what an equilibrium would look like (E). Represent price ratio on your graph. (c) After the employment, both Divid and Mike do not want to change their labor contract. Is the new equilibrium point efficient? Explain. (d) Illustrate the contract curve in the box.

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a Assuming that both David and Mike have the same endowment of leisure and consumption we can constr... View the full answer