Assignment 1:
1.Jack’s
preferences for food, F and clothing,
C, is given by her utility function
was...

Question

Assignment 1:
1.Jack’s
preferences for food, F and clothing,
C, is given by her utility function
was U (F, C) =FC.Suppose that food
costs $2 a unit and that clothing costs $3 a unit, Jack has $24 to spend on
food and clothing. 
a.Using
algebra find the optimal choice of food and clothing.

b.Suppose
Jack decides to buy 3 units of food and 6 units of clothing with her $24
budget, instead of the optimal basket. Would her marginal utility per dollar
spent on food be greater than or less than her marginal utility per dollar
spent on clothing? Explain how she should change her consumption of food and
clothing if she wanted to increase her utility without spending any more money?

2.Explain
the following relationships:
a.The
demand curve and the corresponding marginal revenue curve.

b.Change
in price of a product and the corresponding change in total revenue and the own
price elasticity of demand for the product.

3.Illustrate
with appropriate diagrams and discuss how the labor supply curve is determined.

Document Preview: Assignment 1:Jack’s preferences for food, F and clothing, C, is given by her utility function was U (F, C) =FC. Suppose that food costs $2 a unit and that clothing costs $3 a unit, Jack has $24 to spend on food and clothing.  Using algebra find the optimal choice of food and clothing. Suppose Jack decides to buy 3 units of food and 6 units of clothing with her $24 budget, instead of the optimal basket. Would her marginal utility per dollar spent on food be greater than or less than her marginal utility per dollar spent on clothing? Explain how she should change her consumption of food and clothing if she wanted to increase her utility without spending any more money? Explain the following relationships: The demand curve and the corresponding marginal revenue curve.Change in price of a product and the corresponding change in total revenue and the own price elasticity of demand for the product. Illustrate with appropriate diagrams and discuss how the labor supply curve is determined.

David · Accepted Answer

Utility function and Labor supply: 
 
1. a. Jack’s utility function: 
U(F, C) = FC 
Marginal utility function of F = dMU/dF= C 
Marginal utility function of C = dMUdC = F 
Budget constraint: I = P*F + P*C 
24 = 2F + 4C 
Jack will utilize utility when 
MUf/Pf = MUc/Pc 
C/2 = F/4 
4C = 2F 
F = 2C 
Substituting this equation into budget constraint, we have: 
24 = 2(2C) + 4C 
24 = 8C 
C = 3 
F = (2x3) = 6 
Jack’s optimal choice is: 6 units of food and 3 units of clothing. 
 
b. Jack decides to buy 3 units of food and 6 units of clothing with her budget of $24. 
MUf/Pf = 6/4 = 1.5, MUc/Pc = 3/4 = 0.75 
When Jack decides to buy 3 units of food and 6 units of clothing with his budget of $24, her marginal 
utility per dollar spent on food would be greater than her marginal utility per dollar spent on 
clothing. To increase her utility she can choose a combination of 4 and 4 of food and clothing 
respectively.

Assignment 1: 1.Jack’s preferences for food, F and clothing, C , is given by her utility function was U (F, C) =FC. Suppose that food costs $2 a unit and that clothing costs $3 a unit, Jack has $24 to...

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