MGEC58H3 Study Guide - Final Guide: Marginal Revenue Productivity Theory Of Wages, Horse Length, Profit Maximization

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEC58H3
• Professor: Harry Krashinsky

Document Summary

Solutions to problem set 1 labour supply and labour demand. We know that the equilibrium condition for the labour supply model is: Mut/muc = w. also, since the consumer has 4000 hours at his disposal, then his budget equation is: As such, we can solve for this condition using the wage rate of , and substituting it into the budget equation: (i) u = c0. 5t0. 5. Mrs = w c/t = 25 c = 25t. Therefore, c = 25*2000 = 50,000 (ii) u = 0. 2c0. 5 + t0. 5. Mrs = w c0. 5/0. 2t0. 5 = 25 c0. 5/t0. 5 = 5 c/t = 25 c = 25t. Therefore, c = 25*2000 = 50,000 (iii) u = [25c-1 + t-1]-1. Mrs = [(du/dt)/(du/dc)] = {(-1)[25c-1 + t-1]-2(-1)t-2}/{(-1)[25c-1 + t-1]-2(-1)25c-2} Mrs = w c2/25t2 = 25 c/5t = 5 c/t = 25 c = 25t. T = 2000, h = 4000-2000 = 2000.