Charlie can work as many hours as he wishes at a local fast-food restaurant for a wage of $4 per hour.Charlie also does standup comedy.Since Charlie lives in a quiet, rather solemn Midwestern town, he is the town's only comedian and has a local monopoly for standup comedy.The demand for comedy is Q = 40 - P, where Q is the number of hours of comedy performed per week and P is the price charged per hour of comedy.When Charlie maximizes his utility, he spends at least 1 hour per week working at the restaurant and he gets at least 1 hour of leisure time.His utility depends only on income and leisure.How many hours per week does he perform standup comedy?
A)36
B)40
C)18
D)20
E)We can't tell without knowing his utility function.

Question

Quizplus · Accepted Answer

To maximize utility, Charlie will equate the marginal revenue from comedy to his opportunity cost of $4 per hour from the restaurant. The demand function is Q = 40 - P, so P = 40 - Q. Total revenue is P*Q = (40 - Q)Q = 40Q - Q^2. Marginal revenue is the derivative: MR = 40 - 2Q. Setting MR = 4 gives 40 - 2Q = 4, solving for Q gives Q = 18.

Charlie Can Work as Many Hours as He Wishes at a Local