Cindy gains utility from consumption C and leisure L. The most leisure she can consume in...

Cindy gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 80 hours. Her utility function is: U(C, L) = C(1/3) × L(2/3).

a) Derive Cindy’s marginal rate of substitution (MRS). Suppose Cindy receives $800 each week from her grandmother––regardless of how much Cindy works. What is Cindy’s reservation wage?

b) Suppose Cindy’s wage rate is $30 per hour. Write down Cindy’s budget line (including $800 received from her grandmother). Will Cindy work? If Cindy works, how many hours does she work?

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Rahul Sunny answered 1 week ago

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Cindy gains utility from consumption C and leisure L. The most leisure she can consume in...

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