Question
In: Economics
Jo has preferences described by the utility function, U = c0.5r0.5. Where c denotes her consumption...
Jo has preferences described by the utility function, U = c0.5r0.5. Where c denotes her consumption of carrots in ounces and r denotes her consumption of red meat in ounces. She faces two constraints,
1) she has an income of 1000 and the price of c is 10, while the price of r is 20.
2) due to health concerns, the government does not allow anybody to consume more than 80 ounces of r.
a) write down the Lagrangian and derive the first order and complementary slackness conditions. Use as the Lagrange multiplier for constraint 1 and as the Lagrange multiplier for constraint 2. (For simplicity, you can ignore non-negativity constraints for c and r).
b) you believe that at the optimum, the first constraint is binding and second constraint is slack. You find that c = 50 and r = 25. What else needs to be checked to verify that this is indeed the solution? Carry this(these) step(s) out.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
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(b) What is the worker's reservation wage as a function of T and
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PLEASE SHOW WORK
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today are 10, and taxes tomorrow are 15.
a) Assume that there is a different borrowing versus lending
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Consider a consumer with preferences for consumption today versus tomorrow represented by the utility function U(C,C')...
Consider a consumer with preferences for consumption today
versus tomorrow represented by the utility function U(C,C') =
C2/5C'3/5. Let income today is 50, income tomorrow is 20, taxes
today are 10, and taxes tomorrow are 15.
A. Assume that there is a different borrowing versus lending
rate, so that the lending rate is only 5% but the borrowing rate is
10%. Calculate the optimal consumption bundle. (hint: the consumer
will be a saver)
B.On a (C,C') graph that is properly...
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per unit and that the price subsequently increases to
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