LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 2, Problem 6P
(a)
To determine
Graphically illustrate the budget line of the Person S.
(b)
To determine
Determine the marginal rate of substitution (MRS), when L = 100.
(c)
To determine
Determine the reservation wage.
(d)
To determine
Determine the optimal amount of consumption and leisure.
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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.
Sheila's income and leisure preferences can be
expressed by
U(Y, L) = 2 x (YL - 40Y - 100L)
This utility function implies that Sheila's marginal utility
of leisure is 2Y - 200 and her marginal utility of income
2L-80. In a week, there are 168 hours available for her
to allocate between work and leisure. Sheila earns $10
per hour after taxes and receives $120 worth of welfare
benefits each week during the pandemic regardless of
how many hours she decides to work. Assume that the
price index is 1.
a) What is Sheila's budget line?
b) What is Sheila's marginal rate of substitution when L
= 100 and she is on her budget line?
c) What is Sheila's optimal relationship between income
and labour hours?
d) What is Sheila's optimal amount of labour hours,
leisure hours, and income?
e) At the optimal allocation, what is Sheila's utility level?
Show your work.
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. 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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