Unformatted text preview: orizontal‐axis and vertical‐axis intercepts. c. What is the opportunity cost of an hour spent at leisure, measured in units of the composite good? d. Under these conditions, what is the optimal bundle of leisure and the consumption good? Hint: the marginal utility functions are MUc = 1 and MUr = 8/(r1/2). What is the optimal quantity of labor supplied? e. Suppose the consumer’s wage rate increases from $10/hour to $20/hour. What is the new equation for the budget line? What is the new (optimal) quantity of labor supplied? f. What is the substitution effect (its magnitude and sign) of the wage increase on the quantity of labor supplied? What is the income effect (its magnitude and sign) of the wage increase on the quantity of labor supplied? 7. What does a typical short run marginal product of labor function look like? How about a short run total product function? Why? 8. Consider the following production functions: q = 2K + 3L q = 4K1/2L1/2 a. Graph the short run total product curves for each production...
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- Spring '14
- Utility, $100, $400, $120, $4000