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Calculation of MRS and Optimum Combination of Consumption and Leisure

# Calculation of MRS and Optimum Combination of Consumption and Leisure

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"Shelly’s preference for consumption and leisure are:
U(C, L) = (C-200)*(L-80)
This implies that Shelley’s marginal utility of leisure is C-200, and her margin al utility of consumption is L-80. There are 168 hours available in the week. She also receives \$320 worth of welfare benefits regardless of how much she works.
a) Graph her budget constraint.
b) What is her marginal rate of substitution when L = 100 and she is on the budget line?
c) What is her reservation wage?
d) What is her optimal combination of C and L?
"
"Shelly’s preference for consumption and leisure are:
U(C, L) = (C-200)*(L-80)
This implies that Shelley’s marginal utility of leisure is C-200, and her margin al utility of consumption is L-80. There are 168 hours available in the week. She also receives \$320 worth of welfare benefits regardless of how much she works.
a) Graph her budget constraint.
b) What is her marginal rate of substitution when L = 100 and she is on the budget line?
c) What is her reservation wage?
d) What is her optimal combination of C and L?
"

Categories:Types, School Work
Published by: ClassOf1.com on May 23, 2013
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09/17/2013

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