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# PS4 - Intermediate Microeconomics 2008 due Wednesday...

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Intermediate Microeconomics, 2008 Problem Set No 4 due: Wednesday / Thursday, Jan, 23 / 24 Problems A) Please, solve the following problems from the book. Question 32 is chal- lenging but you can use your results on Cobb Douglas Preferences quite a lot later: 1) 4) 6) 10) 16) 20) 32) B) Consider Jen, a consumer with preferences U(H,F)= F 1 3 H 2 3 , where H is the quantity of housing and F is the quantity of food (per month). Suppose Jen has a stipend of \$600/month which she uses to purchase food at a price of \$1/unit and housing at a price of \$10/unit. a. Compute Jen°s utility-maximizing bundle of goods. b. Suppose that Jen°s employer subsidizes housing by paying 50% of her total housing costs, thereby e/ectively lowering the price Jen pays for housing to \$5/unit. Compute Jen°s new optimal consumption bundle. (Hint: These are Cobb-Douglas Preferences) c. How much does Jen°s employer pay in total for this subsidy? d. Suppose that her employer simply gave Jen the dollar cost you found in (c) as a lump sum (instead of subsidizing housing). Will Jen gain a higher

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PS4 - Intermediate Microeconomics 2008 due Wednesday...

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