PS1 - ECON 3102 002 Fall 2010 Problem Set 1 This problem...

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ECON 3102 - 002 Fall 2010 Problem Set 1 This problem set is due Friday, October 15 at the beginning of the class. The maximum score is 25 points. Feel free to contact me via e-mail if you have speci°c questions about the problem set 1. Q1. Consider the consumer optimization problem we have studied in class. Suppose that the utility function is given by U ( C; l ) = min ( C; al ) where a is a positive constant. Determine the optimal consumption bundle ( C ° ; l ° ) in terms of a , w , h , ° and T . Hint: Optimal consumption bundle will be on the line C = al . Q2. Consider again the problem of the representative consumer whose preferences given by the utility function U ( C; l ) = C ° l ± where ± and ² are positive constants. Determine the optimal consumption bundle ( C ° ; l ° ) in terms of ± , ² , ° , h , T and w , i.e. obtain the closed-form solutions for C ° and l ° . Q3. a. Consider a representative consumer whose preferences over consumption and leisure are given by the utility function U ( C; l ) = C 1 = 2 l 1 = 2 . Assume that she has a total of h = 18
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