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Labor Economics 5th Edition by George Borjas
Edition 5ISBN: 978-0073511368Labor Economics 5th Edition by George Borjas
Edition 5ISBN: 978-0073511368 Exercise 3
Shelly's preferences for consumption and leisure can be expressed as
U(C,L) = ( C - 200 ) × ( L - 80 ).
This utility function implies that Shelly's marginal utility of leisure is C - 200 and her marginal utility of consumption is L - 80. There are 168 hours in the week available to split between work and leisure. Shelly earns $5 per hour after taxes. She also receives $320 worth of welfare benefits each week regardless of how much she works.
a) Graph Shelly's budget line.
(b) What is Shelly's marginal rate of substitution when L = 100 and she is on her budget line
(c) What is Shelly's reservation wage
(d) Find Shelly's optimal amount of consumption and leisure.
U(C,L) = ( C - 200 ) × ( L - 80 ).
This utility function implies that Shelly's marginal utility of leisure is C - 200 and her marginal utility of consumption is L - 80. There are 168 hours in the week available to split between work and leisure. Shelly earns $5 per hour after taxes. She also receives $320 worth of welfare benefits each week regardless of how much she works.
a) Graph Shelly's budget line.
(b) What is Shelly's marginal rate of substitution when L = 100 and she is on her budget line
(c) What is Shelly's reservation wage
(d) Find Shelly's optimal amount of consumption and leisure.
Explanation
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• Preference of cons...
Labor Economics 5th Edition by George Borjas
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