Econ 104B

# Econ 104B - p C = 1 Given ¯ t = 24 hours and non-labor...

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Economics 104B Problem Set #1 (Due April 15) Spring 2010 1. Ralph works 40 hours a week at a \$12.50 wage rate. He unexpectedly inherits a trust fund that pays him \$300 per week. How does inheritance of the trust fund aﬀect his budget line? Will he continue to work 40 hours a week? Will his total income rise by \$300? Provide a graphical illustration for your answers. 2. a) Eric has a utility function u ( l,C ) = lC . Suppose that he works 14 hours a day and gets a utility level of 20. Would he be willing to give up an hour of his leisure to drive someone to a wrestling match if that person oﬀered him \$5? Explain your answer. b) Grace has a utility function u ( l,C ) = C + 20 ln l over bundles of leisure l and consumption C with price
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Unformatted text preview: p C = 1. Given ¯ t = 24 hours and non-labor income = 0, determine the optimal choice of l and C at wage rate w for Grace. Show your work. 3. Let f ( x 1 ,x 2 ) = √ x 1 + √ x 2 be the production function of a ﬁrm. Let input prices be w 1 = \$2, w 2 = \$8, and output price p = \$16. Assume input 2 is ﬁxed in the short run at ¯ x 2 = 100. a) Are the inputs perfect substitutes or perfect complements? b) Find the LR and SR proﬁt-maximizing quantities of the inputs at the given prices. Calculate maximum proﬁts. c) What are the LR and SR cost-minimizing quantities of the inputs that the ﬁrm should use to produce y = 90? d) Find the ﬁrm’s LR and SR cost functions. 1...
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## This note was uploaded on 08/27/2011 for the course ECON 104 taught by Professor Staff during the Spring '10 term at UCSB.

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