Assignment:
1. Consider the problem of a utility maximizing consumer with utility function given by,
??(??,??) = min(??,??)
Where H represents the consumption of Housing (in square meter) and O represents the consumption of other goods and services. For simplicity, we normalize the price of O to $1/unit. The consumer travels to the CBD, where jobs are located and travel cost is $20/km. The consumer lives 5 km away from the CBD and pays $14/square meter for housing.
a. What is the housing consumption of the consumer?
b. (1+2+4=7 points) Suppose the consumer shifts to a location which is 2 km away from the CBD.
What happens to his housing consumption? Show graphically with proper labelling. Calculate the price of housing at the new location.