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Author Question: Economists typically assume that the owners of firms wish to A) produce efficiently. B) maximize ... (Read 100 times)

shofmannx20

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on: Jul 1, 2018
Economists typically assume that the owners of firms wish to
 
  A) produce efficiently.
  B) maximize sales revenues.
  C) maximize profits.
  D) All of the above.

Question 2

Suppose a person's utility for leisure (L) and consumption (Y) can be expressed as U = Y  L and this person has no non-labor income. Assuming a wage rate of 10 per hour, show what happens to the person's labor supply when the person wins a lottery prize of 100 per day.
 
  What will be an ideal response?
Microeconomics ¦ Perloff ¦ 8th Edition
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ghepp

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Reply #1 on: Jul 1, 2018
Answer to Question 1

C

Answer to Question 2

Rearranging yields U = (Y + 10H)  (24 - H) = 24Y + 240H - YH  10H2. Maximizing utility with respect to H yields dU/dH = 240 - Y - 20H = 0. Before winning the lottery, Y = 0, so H = 12. After winning the 100 per day lottery, Y = 100, so H = 7. Winning the lottery reduces this person's quantity of labor supplied by 5 hours when w = 10.


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