Robinson Crusoe has exactly 14 hours per day to spend gathering coconuts or catching fish. He can catch 4 fish per hour or he can pick 12 coconuts per hour. His utility function is U(F, C) = FC, where F is his consumption of fish and C is his consumption of coconuts. If he allocates his time in the best possible way between catching fish and picking coconuts, his consumption will be the same as it would be if he could buy fish and coconuts in a competitive market where the price of coconuts is $1.

Question

Quizplus · Accepted Answer

Robinson can spend 14 hours to gather either 56 fish or 168 coconuts. If the price of coconuts is $1, his income is $168. To equate his utility from both activities, the price of fish must be $3, as he can catch 4 fish per hour, equating to $12 per hour, matching the $12 per hour from coconuts.

Robinson Crusoe Has Exactly 14 Hours Per Day to Spend