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Provide the utility function for consumption and leisure, compute the optimum combination of consumption and leisure.

Mike's utility of consumption and leisure is U(C, L) =C*L, so that his marginal rate of substitution is C/L. There are 168 hours in the week and he earns $10 an hour.

a)What is his optimal combination of C and L?

b) If the government starts a welfare policy that pays B to all non workers and 0 to all workers, at what value of B will Mike opt out of the labor force and go on welfare?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M919496

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