Question

as/Problem%20Set%201.pdf Chapter 1 1. For r each of the following questions, identify the a) endogenous variables, b) exogenous vari- ables, c) optimality condition, and d) constraint(s). decide how many days to go skiing in February. Even though you have a ski pass (a sunk cost), you still have to pay $20 in costs to drive up to the mountains every time. You also have to eat this month, which means that you also need to decide how many Illegal Pete's burritos, which each cost $10, you are going to buy. You have $400 to spend for the month. 0 (b) Suppose that you are trying to order enough pizza to feed a group of people. You know that a pizza costs $12, and a box of bread sticks costs $6. A pizza has 4 servings, and a box of bread sticks has 3 servings. Each person will eat 1 serving of food. However, the pizza place will not allow you to order more than 6 pizzas and 10 boxes of bread sticks in 1 order. You need to buy enough food to feed 40 people, and you want to do it at the lowest cost.

Answer 1

a)

a)endogenous variables are those that are determined within the model

so here Number of skiing outing and number of burritos are the endogenous variables

b)exogenous variable are determined outside the model, so monthly budget of $400 and price of skiing(S) $20and price of burritos(B) $10 are exogenous variables .

c) optimality equation =maximize : 400 = 20S + 10B

d) constraints : S>0

B>0

b) Endogenous variable are the number of pizza bought and number of breadstick bought.

Exogenous variables : number of people = 40

number of serving per pizza (P) = 4

number of serving per bread stick (B) = 3

optimality equation : maximise : 40 = 4P + 3B

constraint : 0 < P< 6

0 <B < 10