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Public Econ – Pset Public Econ – Pset

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Public Econ – Pset


Public Econ – Pset
public-econproblem-set-lga1uvkp.docx public-econproblem-set-xljr1ic2-5jx20gdz.docx
Answered Same Day Nov 16, 2022

Solution

Komalavalli answered on Nov 17 2022
39 Votes
4.
U(C,L) = 2/7ln(C)+5/7ln(L)
a)
Budget constraint 28000=C+L
K = 2/7ln(C)+5/7ln(L)+µ(28000-C-L)
∂K/∂C = 2/7C- µ = 0    ---------(1)
∂K/∂L = 5/7L- µ = 0    ---------(2)
∂K/∂ µ = 28000-C-L = 0 ---------(3)
Divide (1) by (2)
µ = 2/7C
µ=5/7L
2/7C *7L/5 = 1
L/C =5/2 = 2.5
L = 2.5C
Substitute L = 2.5C in (3)
28000-C-2.5C= 0
3.5C = 28000
C =8000
L = 2.5*C
L = 2.5*8000
L = 20000
Optimal consumption and leisure is 8000 , 20000
)
U(C,L) = 2/7ln(C)+5/7ln(L)
Budget constraint 35000=C+L
K = 2/7ln(C)+5/7ln(L)+µ(35000-C-L)
∂K/∂C = 2/7C- µ = 0    ---------(1)
∂K/∂L = 5/7L- µ = 0    ---------(2)
∂K/∂ µ = 35000-C-L = 0 ---------(3)
Divide (1) by (2)
µ = 2/7C
µ=5/7L
2/7C *7L/5 = 1
L/C =5/2 = 2.5
L = 2.5C
Substitute L = 2.5C in (3)
35000-C-2.5C= 0
3.5C = 35000
C =10000
L = 2.5*C
L = 2.5*10000
L = 25000
Optimal consumption and leisure is 10000 , 25000
Labor supply decreases since he can earn more now and also enjoy more...
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