# hw2_modified - Macroeconomics Homework#2 1. Mr. White is...

This preview shows page 1. Sign up to view the full content.

Macroeconomics Homework#2 1. Mr. White is endowed with 16 hours per day to be allocated between working (L) and leisure (R). His preference over L and R is represented by the utility function , = { , } UR C min R C . He does not have non-labor income and all of his labor income is spent on a consumption good C. His wage rate is \$10 and the price of C is \$1. a. To maximize utility, how many hours should Mr. White work per day? b. If now his wage increases to \$20, but only for those hours of working exceeding that in (a). How many hours should Mr. White work now? 2. Henry’s yearly time endowment is T hours. He can work as many hours as he chooses at a wage rate of w a. Write down the budget constraint that links Henry’ hours of leisure (n) and his units of consumption (c). b. Suppose Henry’s utility function is U=96n+nc-n^2. What is Henry’s labor supply function? [Hint: maximize utility subject to the budget constraint, and note that labor supply is (T-n).] c. Suppose that Henry’s earnings in the labor market are subject to a tax rate
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 06/15/2011 for the course FIN 355 taught by Professor Tang during the Spring '10 term at Aachen University of Applied Sciences.

Ask a homework question - tutors are online