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Unformatted text preview: Homework Assignment 2 Econ 382, Professor Platt, BYU Due in class, January 21st, 2009 1 Warmup Optional questions. Points earned in this section can offset points lost elsewhere (though the maximum score for the assignment is still 100 points). Credit is only given if you show all steps taken to obtain your answer. 1. Suppose that Alex must produce his own cereal, using raw inputs of raw materials (obtained from his parents food storage) and labor (provided by Alexs cooking skills). (a) (4 pts) Suppose Alex has a utility function U a ( c a , a ) = c . 5 a . 5 a . He has no endowment of cereal, but is endowed with 120 hours of time (which can be sold as labor or kept as leisure, ) and 40 food storage cans ( s ). Set up his household problem. (b) (4 pts) Next, consider production in this economy. Alex sets up a firm to produce cereal. Production of cereal is given by F C ( L,S ) = L . 5 S . 5 . Set up the firms problem. (c) (4 pts) Define a competitive equilibrium for this economy. (You may refer to the previous two parts as appropriate, rather than repeating them, but be precise.) Be sure to specify the market clearing condition for each market. (d) (4 pts) Solve for the aggregate ( i.e. Alexs) demand for leisure and for cereal (in terms of input and output prices there should be no other variables in the resulting equations)....
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- Spring '08