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1. Assume the following utility function U(c, l) = c1/3 l2/3 implying the relative importance of...

1. Assume the following utility function U(c, l) = c1/3 l2/3 implying the relative importance of the consumption and leisure are, 1/3 and 2/3 respectively. Given the budget constraint cP=W(24-l), in which W=$40 and P=$5, solve for the optimal consumption(c) and leisure(l) and labor supply (h) for this consumer.

2. What would happen to the optimal consumption (c), leisure (l) and labor supply (h), in the above question Q1 if the government offers a lump sum subsidy of $4,000 for each family? You don’t need to solve this numerically, but may answer this graphically using the budget set as we studied in the class.

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Rahul Sunny answered 1 year ago
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