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In: Economics

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

  1. What is the optimal choice for consumption?
  • what is the optimal level of leisure?
  • what is the optimal level of labor supply?
  1. 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?
  1. 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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