Labor Economics
7th Edition
ISBN: 9780078021886
Author: George J Borjas
Publisher: McGraw-Hill Education
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Question
Chapter 2, Problem 6P
(a)
To determine
Graphical representation of Person S’s budget line.
(b)
To determine
Person S’s marginal rate of substitution when L=100.
(c)
To determine
Identify the reservation wage of Person S.
(d)
To determine
Identify Person S’s optimal amount of consumption and leisure.
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Shelly’s preferences for consumption and leisure can be expressed as U(C, L) = (C - 200) * (L - 80) This utility function implies that Shelly’s marginal utility of leisure is C - 200 and her marginal utility of consumption is L - 80. There are 168 hours in the week available to split between work and leisure. Shelly earns $5 per hour after taxes. She also receives $320 worth of welfare benefits each week regardless of how much she works. a. Graph Shelly’s budget line. b. What is Shelly’s marginal rate of substitution when L = 100 and she is on her budget line? c. What is Shelly’s reservation wage? d. Find Shelly’s optimal amount of consumption and leisure.
Question 3:
Shelly's preferences for consumption and leisure can be expressed as:
U(C, L) = (C-200) × (L-80)
This utility function implies that Shelly's marginal utility of leisure is C -200 and her marginal
utility of consumption is L - 80. There are 168 hours in the week available to split between work
and leisure. Shelly earns $5 per hour after taxes. She also receives $320 worth of welfare benefits
each week regardless of how much she works.
(a): Graph Shelly's budget constraint.
(b): What is Shelly's marginal rate of substitution when L = 100 and she is on her budget line?
Question 4:
The utility function of a worker is represented by U(C, L) = C x L. Suppose this person currently
has a weekly income of $600 and choose to enjoy 70 hours of leisure per week. How many ad-
ditional dollars of income would it take to entice the worker to work 10 more hours?
Katie’s preferences for consumption and leisure can be expressed as
U(C, L) = (C – 80) x (L – 40)
This utility function implies that Katie’s marginal utility of leisure is C – 80 and her marginal utility of consumption is L – 40. There are 110 hours in the week available to split between work and leisure. Katie earns $15 per hour after taxes. She also receives $200 worth of assistance benefits each week regardless of how much she works.
Graph Katie’s budget line.
What is Katie’s marginal rate of substitution when L = 70 and she is on her budget line?
What is Katie’s reservation wage?
Find Katie’s optimal amount of consumption and leisure.
Chapter 2 Solutions
Labor Economics
Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - Prob. 11RQCh. 2 - Prob. 12RQCh. 2 - Prob. 13RQCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - Prob. 6PCh. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - A worker plans to retire at the age of 65, at...Ch. 2 - Prob. 12PCh. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15P
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