Consider two individuals with endowments of T 5 60 hours (per week) of leisure, nonlabour income of Y, and a wage of $7.50 per hour. At this wage, assume that workers are constrained by their employers to work 40 hours per week, or not at all. a. On a carefully labelled diagram, show the equilibrium for a worker for whom 40 hours is the optimum labour supply and a worker who would like to work 20 hours, but still prefers the 40-hour week to not working. Compare the mar- ginal rates of substitution for these individuals at 40 hours per week. b. The average part-time wage is $7 per hour, in contrast to $7.50 wage for full-time workers. Using the above model, provide an explanation for this difference in wage rates.

Consider two individuals with endowments of T 5 60 hours (per week) of leisure, nonlabour income of Y, and a wage of $7.50 per hour. At this wage, assume that workers are constrained by their employers to work 40 hours per week, or not at all. a. On a carefully labelled diagram, show the equilibrium for a worker for whom 40 hours is the optimum labour supply and a worker who would like to work 20 hours, but still prefers the 40-hour week to not working. Compare the mar- ginal rates of substitution for these individuals at 40 hours per week. b. The average part-time wage is $7 per hour, in contrast to $7.50 wage for full-time workers. Using the above model, provide an explanation for this difference in wage rates.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.8P

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