c 6 points When a consumer is optimizing her choices if the

(c) (6 points) When a consumer is optimizing her choices, if the marginal utility of consump- tion is higher than the marginal utility of leisure, she will increase her consumption. True False (d) (6 points) If we increase the non-wage income of a consumer, she will increase both consumption and leisure True False (e) (6 points) In production, if a technology is constant returns to scale, doubling the inputs doubles the output produced. True False

Solution

c).

Consider the given problem here under “labor leisure choice” problem a typical consumer optimally make his/her choice by using the condition, “MUL/MUC = w”, here “w” be the real wage, because wage be the opportunity cost of enjoying leisure.

So, the above condition can be written as, “MUL/MUC = w, => MUC = MUL/w”. So, here if “MUC > MUL/w”, => the consumer prefer to consume and work more and enjoy less leisure.

So, the given statement is “FALSE”.

d).

As we know the wage rate is the opportunity cost of enjoying leisure, => if “w” increases the consumer may prefer to increase its work and consumption and decrease its leisure if “SE > IE”. Now, a nonwage income doesn’t shows any trade off here, => if the “nonwage” income increases, => the budget line will shift parallelly, => both “consumption” and “leisure” both increases. So, the statement is “TRUE”.

e).

Now, under CRS if we increase all the input with a fixed proportion, => the output will also increase by the same proportion, => if we double all the inputs, => the output will also double. So, here the above statement is “TRUE”.