Given the utility function for consumption and leisure, graph the budget constraint; compute the MRS and optimum combination of consumption and leisure.
Shelly's preference for consumption and leisure are:
U(C, L) = (C-200)*(L-80)
This implies that Shelley's marginal utility of leisure is C-200, and her margin al utility of consumption is L-80. There are 168 hours available in the week. She also receives $320 worth of welfare benefits regardless of how much she works.
a)Graph her budget constraint.
b)What is her marginal rate of substitution when L = 100 and she is on the budget line?
c) Illustrate what is her reservation wage?
d)What is her optimal combination of C and L?