Question

3. Person A and B are both lawyers choosing between two career options: associate at a big law firm or a public defender. Associates must work at least 45 hours per week. Beyond that, they can choose how many hours to work up to a maximum of 120. Their wage is $100 per hour. Public defenders work exactly 40 hours per week and earn $3600 for it. Person A has utility function UA = Le* C and person B has utility function Up = Leº C0.2 where Le is leisure and C is consumption. They both have $100 in non-wage income. (a) Imagine that person A is an associate. How many hours do they choose to work? (b) Which job does person A choose? Use a calculator. (©) Imagine that person B is an associate. How many hours do they choose to work? (d) Which job does person B choose? Use a calcuditor. (@) Think about what this problem is designed to represent: what is the difference between person A and B in terms of marginal utility of leisure? What do some economists. like Goldin, think correlates with marginal utility of leisure? Make an argument for or against this.

Answer 1

: 3. (a) utility A: UA = Lec Budget ; c=100(120- Le) +100 Equilibrium: mule = w - MO C L or, E = 100 - - 100 Le from budget: 200le = 12100 Liebe : 60'5 ? (6) .L = 59.5 Person a well chose job of associate because this ensures. higher earning

(d) person B chose job public defen der because he has to work less in that case Lees - The mu of leisure for A is lower than person B at current wage This correlates with income. ..

() Mility: up = Le Co2 Budget i C: 100(120-le) +100 Equilibrium: Muce = w Muc or Le coz 0.7L coog : 100 or you too Le c = 10Le i ...!) 2 sulestitute (i) in budget": C:100 (120 - Le) + 100 :.10Le = 100 (120-Le) +100 or, 110 Le = 12100 :Le = 110 : L 10 . But the ho associate must work at least 45 howes. Then at current wage he choses ; 1:45

.: Le = '10 ', LE 10 .. But the ho associate must work at least 45 howes. Then at curre wage' he choses ; 1:45, . ..C: 45 x 100 = 4500 The correct option in 4500