Suppose that the utility function of an individual is given by U=Y/2L2, where Y is real income and Lis leisure time. The marginal utilities are MUL=0.5Y2L-1/2 and MUy=0.5Y L2 There are 15 hours available for labour/leisurer the current wage rate is $20 per hour, and the price index for real income is 5. Assume that there is no non-labour income. Show minimal calculation work. a) Determine the budget constraint function? b) Determine the optimal relationship between income and labour hours? C) Calculate the optimal amount of labour hours? ) Calculate the optimal amount of leisure hours? ) Calculate the income level of the individual at the optimal condition? Calculate the utility level for the individual at the optimal condition?

Suppose that the utility function of an individual is given by U=Y/2L2, where Y is real income and Lis leisure time. The marginal utilities are MUL=0.5Y2L-1/2 and MUy=0.5Y L2 There are 15 hours available for labour/leisurer the current wage rate is $20 per hour, and the price index for real income is 5. Assume that there is no non-labour income. Show minimal calculation work. a) Determine the budget constraint function? b) Determine the optimal relationship between income and labour hours? C) Calculate the optimal amount of labour hours? ) Calculate the optimal amount of leisure hours? ) Calculate the income level of the individual at the optimal condition? Calculate the utility level for the individual at the optimal condition?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.1P

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Suppose Jenny has 16 hours per day to allocate between work and leisure and she earns a wage rate of $25 per hour. If at the utility-maximizing level of employment (i.e., MRSy; = w), Jenny's MUy is 20 utils, what is her MUl? O A. 1.25 utils O B. 0.8 utils O C. 500 utils O D. Cannot be determined with the information provided.
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