10 Problem 04-21 (algo) 8.33 Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with workers' compensation and points has decided to cut the wages of its two employees (Albert and Sid) from $21 per hour to $18 per hour. Assume that Albert and Sid view Income and leisure as "goods," that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Albert and Sid's opportunity set is presented below: Book Albert and Sid's Opportunity Set Income Print References 5 10 15 20 25 30 Leisure Hours What is the value of A when the wage Is $21? (Assume a 24-hour work day.) What is the value of A when the wage Is $18? (Assume a 24-hour work day.) At the wage of $21 per hour, both Albert and Sid are observed to consume 14 hours of leisure (and equivalently supply 10 hours of labor). After wages were cut to $18, Albert consumes 11 hours of leisure and Sid consumes 16 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $18 per hour: Albert's supply of labor =[ Sid's supply of labor =8.33 points References Problem 04-14 During the past major recession. upscale hotels In the United States recently cut thelr prices by 25 percent In an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization Indicated that buslnesses were becoming war}.r of bad economic conditions and began resorting to electronic media. such as the Internet and the telephone. to transact buslness. Assume a company's budget permlts It to spend $5.000 per month on eIther buslness travel or electronic media to transact buslness. In the graph below, Illustrate this company's budget set Ifd'te prlce of business travel Is $1,200 per trlp and the price of electron Ic media Is $600 per hour. In the same graph. Illustrate this company's budget set atter the prlce of buslness travel Is reduced by 25 percent. Instruction: Graph both budget sets from where the Guantlly of Electronlc Medla = 0 to where the budget set crosses the Xaxls. 6) Budget Sets 8- Tools 3? / In ltial Budget Budget Set 51' Quantity af Travel a. 0 2 4 s 3 m 12 '- Quantity of Electronic Media 6 Problem 04-13 A recent newspaper circular advertised the following special on tires: "Buy three, get the fourth tire for free-limit one free tire per 8.33 customer." If a consumer has $360 to spend on tires and other goods and each tire usually sells for $40, plot this consumer's points opportunity set when this special is offered. Instruction: If the opportunity set has any kinks, be sure to plot all the points where the kinks occur, In addition to the points where the line crosses the Intercepts. Graph the budget set from where Tires = 0 to where it crosses the X-axis. Book Opportunity Set Print Tools 400 380 References 360 340 320 Budget Set 300 280 260 240 220 Income Spent on Other Goods 200 8688386882 O 0 2 A 8 10 12 Tires5 Problem 04-10 (algo) 8.33 A worker views leisure and income as "goods" and has an opportunity to work at an hourly wage of $18 per hour. points a. The worker's opportunity set in a given 24-hour period is illustrated below. What are the values of A and B? Income Leisure A = 3 = b. Suppose the worker is always willing to give up $12 dollars of income for each hour of leisure. Do her preferences exhibit a diminishing marginal rate of substitution? No How many hours per day will she choose to work