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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?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M919498

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