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Reservation Wage

I understand the definition of a reservation wage, but I am not sure how to essentially compute it. Here is a typical problem I have come across:

John's utility function is U(C, L) = C*L Where C is Consumption, and L is Leisure.

The most Leisure John can get in a week is 168 hours. Regardless how many hours a week John works, he gets a $200 allowance from his father. What is his reservation wage?

Can you walk me through the steps involved to compute the reservation wage?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M924094

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