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Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022 Exercise 19
Suppose two individuals (Smith and Jones) each have 10 hours of labor to devote to producing either ice cream (X) or chicken soup (Y). Smith's demand for X and Y is given by 
whereas Jones's demands are given by
where IS and 1/ represent Smith's and Jones's incomes, respectively (which come only from working).
The individuals do not care whether they produce X or Y and the production function for each good is given by
X = 2L
Y = 3L
where L is the total labor devoted to production ofeach good. Using this information, answer the following:
a. What must the price ratio, Px/Py be?
b. Given this price ratio, how much X and Y will Smith and Jones demand? (Hint: Set the wage equal to 1 here so that each person's income is 10.)c. How should labor be allocated between X and Y to satisfy the demand calculated in part b?
whereas Jones's demands are given by
where IS and 1/ represent Smith's and Jones's incomes, respectively (which come only from working).
The individuals do not care whether they produce X or Y and the production function for each good is given by
X = 2L
Y = 3L
where L is the total labor devoted to production ofeach good. Using this information, answer the following:
a. What must the price ratio, Px/Py be?
b. Given this price ratio, how much X and Y will Smith and Jones demand? (Hint: Set the wage equal to 1 here so that each person's income is 10.)c. How should labor be allocated between X and Y to satisfy the demand calculated in part b?
Explanation
Verified
Verified
a) Price ratio 
Price ratio must tangent...
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
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