A household has utility function U(F,C) = F1/2 C 1/2, where F is food and C is
Question:
(a) Find Farmer Joes demand functions for apples and bananas. (b) Find Joes own- and cross-price elasticities of demand for both A and B. 7. Bill is a utility maximizer, and his utility function is U=y1/2 T, where y=quantity of "goods" consumed per day and T=non-working hours per (24-hour) day. The price of "goods" is $1.50 per unit. (a) Let the wage rate be $w per hour. How many hours will Bill work? (b) Suppose the current wage rate is $5 per hour. Bills boss wants him to work more than the number of hours he is presently working, and offers a 10% raise. What is Bills reaction? Explain. (c) Suppose his boss decides to maintain Bills regular wage at $5 per hour, for the first 8 hours worked, and then pay an overtime rate thereafter. What overtime rate would he have to offer Bill to get him to work 10 hours per day? (Hint: Write down Bills constraint now as a function of the number of overtime hours, x and the overtime wage, v. Then find Bills optimal x (or T) as a function of v. Finally, find the value of v that would induce x=2.) 8. The diagram at right shows Andrews supply curve for labor. On the vertical axis is the hourly wage rate, and on the horizontal axis is the number of hours worked per day. Suppose wo is the wage rate. (a) What is the economic interpretation of the two areas A and B in the diagram? (b) Suppose the equation of Andrews supply curve is L = -1 + w/2, where w is the hourly wage rate and L the number of hours of work per day. How many hours would Andrew work per day if the wage rate were $10 per hour? What wage rate would induce Andrew to work 8 hours per day? What would then be his daily earnings? (c) If the going rate in the market were $10 per hour, and a firm offered Andrew a job that would require him to work 8 hours per day at a daily salary of $90, would he accept? Explain your reasoning carefully. 9. Evaluate the following statement in the context of the two-period inter-temporal choice model: A rise in the interest rate would unambiguously lead consumers to consume less in the present and more in the future. State whether this is true or false and explain clearly the.
Managerial Economics and Business Strategy
ISBN: 978-0071267441
7th Edition
Authors: Michael R. baye