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4. (15 points) How does a consumer’s optimal choice of goods change if all prices and the consumer’s income double?

4. (15 points) How does a consumer’s optimal choice of goods change if all prices and the consumer’s income double? (Hint: focus on the budget constraint. You don’t have to, but you can use an example to support your answer).

5. (20 points) Output is produced according to a production process given by: Q = 4LK, where L is the quantity of labor input and K is the quantity of capital input. If the price of K is $10 and the price of L is $5, then what is the cost-minimizing combination of K and L capable of producing 32 units of output?

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If all the prices and the consumers income doubles, a consumers optimal choice of goods does notchange. Since the income and the prices are doubled the consumer can buy the same amount of each…

 

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