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Joanne Sleeps Exactly 8 Hours Per Day, and She Devotes

Question 63

Essay

Joanne sleeps exactly 8 hours per day, and she devotes the remaining 16 hours to
work (H), golf (x1)and computer games (x2). She can work as many hours as she wants at a wage rate of $w per hour. The money price of a round of golf is p1 and the time price is 4 hours. Each computer game takes 2 hours to play and Joanne downloads the game from the internet for free (p2 = 0). Her utility function is
U(x1,x2)= x1x2
i)Find the utility maximizing values of x1 and x2 as functions of w and p1.
ii)When w = $10 per hour and p1 = $40 how many rounds of golf is Joanne going to play? How many computer games? How many hours is she going to work?

Correct Answer:

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The budget constraint is p1x 1 + p2x2 = wH and...

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