Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Each week, Mara works l hours per week to consume x1 and x2 quantities of two goods. She has L hours of time at her

Each week, Mara works l hours per week to consume x1 and x2 quantities of two goods. She has L hours of time at her disposal per week. She choses how many hours she works and the quantities of these two goods she consumes to maximise her weekly utility function given by U(x1, x2, l) = ln(x1) + ln(x2) + (1 )ln(L l),

which is defined for 0 l < L and for x1, x2 > 0. Here and are positive parameters satisfying + < 1. She faces the budget constraint p1x1 + p2x2 = wl, where w is the wage per hour, p1 is the unit price of good 1, and p2 is the unit price of good 2.

Assume that is equal to 0.25 and is equal to 0.5 and that Mara has 16 hours at her disposal per day. Mara can buy either one unit of x1 or two units of x2 with the income she generates by working for 4 hours. Find Mara's demands of x 1 and x 2 , and her labor supply l that maximises her weekly utility. [5 points]

I've posted this qs 3 times and still dont have a clear answer. Pls explain this qs in full steps including what the constraint is and how do you know that this is the constraint. thanks

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Political Economy

Authors: Thomas Oatley

6th Edition

1138490741, 9781138490741

More Books

Students also viewed these Economics questions

Question

T F Screening is the first step in the evolution of a new product.

Answered: 1 week ago

Question

explain five important changes in the world of work;

Answered: 1 week ago