Given that MU_Y = marginal utility of income, MU_LE = marginal utility of leisure, and W is the wage, utility is maximized by allocating time between work and leisure so that: A) MU_Y = MU_LE. B) MU_Y × P_Y = MU_LE ×W. C) MU_Y/P_Y = MU_LE/W. D) P_Y = W.

Question

Quizplus · Accepted Answer

The optimal allocation of time between work and leisure is achieved when the ratio of the marginal utility of income to the price (or wage) of leisure is equal to the marginal utility of leisure. This can be expressed as MU_Y/P_Y = MU_LE/W. Therefore, the correct choice is C.

Given That MUY = Marginal Utility of Income, MULE =

Given That MU_Y = Marginal Utility of Income, MU_LE =