PS1-1 2009

# PS1-1 2009 - Econ 600 Managerial Economics Spring 2010 Dr...

This preview shows pages 1–2. Sign up to view the full content.

Econ 600 Managerial Economics Spring 2010 Dr. Yi Problem set 1-1 Rick Vollman 1. Researchers at Hokmah market research and consulting company has the following utility function which represents researchers’ utility at work. U=E^(1/2)*L^(1/2) where E represents efforts and L represents Leisure (goof-off). (This specification of utility function will produce nice set of indifference curves that we saw in class). Researchers’ constraint (i.e. budget line) is L=20-2E where it is assumed that the unit value of effort is \$2 and the unit value of leisure is \$1. Given the set up above, the optimal combination of E and L is 5 and 10, respectively. (a) What is the total utility at this optimal level of E and L?By substituting the optimal values into the formula U = 5^1/2 * 10^1/2 = 7.071 (b) As the CEO of this company, you think that the level of E is too low. Therefore, you want to encourage the researches to increase the effort level without affecting the current utility level. How can you achieve this goal?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 2

PS1-1 2009 - Econ 600 Managerial Economics Spring 2010 Dr...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online