Scott's wage is $25 per hour and he works 50 hours a week,which is his optimal labor supply at that wage.His marginal utility of one hour of leisure is equal to the:
A)marginal utility he gets from $25 worth of goods.
B)marginal utility he gets from more than $25 worth of goods.
C)marginal utility he gets from less than $25 worth of goods.
D)substitution effect.

Question

Quizplus · Accepted Answer

According to the law of diminishing marginal utility, as Scott works more hours, the marginal utility of one more hour of work decreases. Therefore, it can be assumed that at his optimal level of labor supply (50 hours per week), the marginal utility of one more hour of work is equal to the marginal utility he would get from consuming $25 worth of goods, which is his wage rate. Therefore, the correct answer is A.

Scott's Wage Is $25 Per Hour and He Works 50