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Mr. Simpson’s preferences for consumption and leisure can be expressed as U(C,L)=(C-100)(L-68). There are 168 hours...

Mr. Simpson’s preferences for consumption and leisure can be expressed as U(C,L)=(C-100)(L-68). There are 168 hours in a week available for him to split between work and leisure. He earns $20 per hour after taxes. He also receives $300 worth of welfare benefits each week regardless of how much he works.

What is Mr. Simpson’s optimal level of consumption?

What is Mr. Simpson’s reservation wage?

Suppose that in addition to the $300 government welfare, Mr. Simpson receives from his oversea relative $200 per week. Which of the following changes is consistent with the theory of labor supply?

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Answer #1

CC-100) CL-68) Non labor anome T300 u cGL) then 1 at Eqm MRS LC= w MRSL,C MULIMUC CG-100) (L-68) then at eqm le-10 L-G8) aol-

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