Lois and Clark have the same preferences over leisure and consumption, two normal goods. They also have the same daily nonlabor income $20 and hourly...

Lois and Clark have the same preferences over leisure and consumption, two normal goods. They also have the same daily nonlabor income $20 and hourly wage rate $10. But they differ in two ways. Lois lives next to her office, so it takes her no time to commute to work. Clark, however, loses an hour every day commuting if he works at all. If Clark works, his employer provides a clean uniform for him every day. Lois, however, must have a clean business suit every day she works; if Lois works, her daily dry-cleaning cost is $5. Assume the price of the consumption good is $1.

(a) In the figure above, mark the common endowment point with an E.

(b) Use an open point to mark Lois’s (l, c) if she pays for daily dry cleaning but puts in no hours at work; mark this point with L. Also, use C to mark the open point associated with Clark commuting to and from work without putting in any time at work

(c) Draw Lois’s budget line through L and Clark’s budget line through C. Who has the bigger budget set?

(d) Lois and Clark both work. Is one person better off than the other? If so, who?

(e) Who works a longer workday?

(f) What effect does an increase in the cost of dry cleaning have on Lois’s reservation wage? With the higher cost of dry cleaning, is she more likely or less likely to work?