1. Consider the following utility maximization problem: U(c,l)=log(c)+log(l) W=5, h=1, π-T=2 π= non wage income (ex....

1. Consider the following utility maximization problem:

U(c,l)=log(c)+log(l)

W=5, h=1, π-T=2

π= non wage income (ex. dividends) T=taxes w=wage h=time endowment

What is the optimal choice for consumption?

what is the optimal level of leisure?
what is the optimal level of labor supply?

assume that π−T=1. what is the optimal level of consumption?

what is the optimal level of leisure?
what is the optimal level of labor supply?

Now assume that π−T=2 and w=6

What is the optimal choice for consumption?
what is the optimal level of leisure?
what is the optimal level of labor supply?
what is the level of utility at the optimal point?

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Expert Solution

Rahul Sunny answered 1 year ago

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