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QUESTION
Assume Mindy gains utility from consumption C and leisure L.
Assume Mindy gains utility from consumption C and leisure L. The total non-labor income she gets is $550 per week and the total non-sleeping time she can allocate between work and leisure is 110 hours per week. Her utility function is U(L, C) = L*C.
a) What's the marginal rate of substitution of L for C?
b) Calculate Mindy's reservation wage.
c) If Mindy's non-labor income increases to $770 per week, what happens to her reservation wage?
