Unformatted text preview: 2-6. 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....
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- Spring '09
- Economics, Marginal rate, Shelly, reservation wage, Cindy gains utility