Question

Ember (E) and Rajan (R) are a couple with individual productivities in both the market and their home. Each has 10 hours per day to devote to work. E can earn $9 per hour in the market, and can produce goods worth $8 per hour at home. R can earn $12 per hour in the market, and can produce goods worth $6 per hour at home. Market-produced goods cost $5 per unit. If the couple chose to consume more home produced goods than either Ember or Rajan could produce alone, and the couple wanted to maximize their joint utility, which partner would produce market goods? Briefly explain why. Note: you do not have enough information to provide a numerical answer.

Answer 1

Rajan should produce market goods.

Producer aims at maximising profits and their utility when producing goods and services. So they produce only those in which they excel and earn more.

E can only earn $9 by working for one hour in the market. So by working for 10 hours, E can earn $90 per day by producing market goods.

On the other hand R can earn $12 by working for one hour in the market. So after working for 10 hours, R can earn $120 per day by producing market goods.

It is clear that R can earn more than E by working in the market. So, R should produce market goods.

E should produce home goods because E can earn more than R by devoting time for producing home goods.