3. Suppose an individual has a utility function U=U(M, X)=10 MX^2, where U is her utility,...

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Question

3. Suppose an individual has a utility function U=U(M, X)=10 MX^2, where U is her

utility, M is her(daily) money income and x is her(daily) leisure hours. Each

day, the individual needs 6 hours for sleeping and other essential personal matters

3. Suppose an individual has a utility function U = U(M,X) = 10 MX, where U is her utility, M is her (daily) money income an

business economics

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Answer 1

Answer #1

Answer 3

(i)

It is given that he has 18 hours to spend either on Leisure(X) and on working(W) and earning income M.

Thus, X + W = 18 where W = number of hours worked and X = Total leisure hours

=> W = 18 - X --------------------------(1)

M = daily income = wage rate*Hours worked = 5W

=> M = 5W

From (1) we have :

M = 5W = 5(18 - X)

=> M = 90 - 5X

=> M + 5X = 90

Thus Daily income constraint of this individual in terms of X and M is given by :

M + 5X = 90

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Answer 2

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