Timothy's utility function is U(x,y)=ln??x+ln?y ?.
Find his demand for x and y as a function of income and prices x(p,I),y(p,I)
For questions b)-c) Assume I=90, p_x=15, p_y=15
Find Timothy's demand curve for good x, and plot on a graph
Show on a graph the effect of an increase in income on consumption of both x and y using the income consumption curve. Is x an inferior good or a normal good?.
Jinny's Jumpers producers jumpers using wool (W) and labour (L). Her production function is f(W.L)=4√WL. Wool costs $5/unit while labour costs $20 per unit. [please put L on the x-axis and W on the y-axis]
Find her cost-minimizing bundle of wool and labour if she wants to produce 6 units. Show on a graph with the isocost and isoquant curves.
Suppose the cost of labour decreases to $10 per unit, Explain using a graph how her optimal input bundle will change. [you don't need to find the new optimal bundle, just show the change on a graph]
Suppose now that the cost of labour and wool both increase by 50% (from the original $5 and $20). Explain what effect this will have on the optimal input bundle, and why.