HW Assignment # 1
1. Suppose that an individual has a utility function U(c, h) = ln(c) + h (c
consumption of a necessity good such as shelter, and h represents health).
a. Find that optimal amount of c and h if the individual i
HW #1 Solutions.
a. In order to nd the utility maximizing bundle, we must nd where
M RS = M Uh = ph and where I = pc c + ph h:
First, lets nd the MRS. M Uc = dU = 1 : M Uh = 1: So MRS= 1 : Now
lets nd ph ; which in this case is 1 :
HW Assignment # 2
Suppose that an individual has a utility function U (c) = c1=2 : They have 400
dollars. With probability 0.1 they get sick, which results in complete loss of their wealth
(their wealth becomes 0.
a. What is their expe