Suppose marginal utility from leisure is given by 3c0.5/(2ℓ0.5) and marginal utility from consumption is given...

Suppose marginal utility from leisure is given by 3c0.5/(2ℓ0.5) and marginal utility from consumption is given by 3ℓ0.5/(2c0.5) and that an individual can work up to 24 hours per day at a wage of $20 per hour.

A. Write the mathematical condition which must be satisfied in order for a worker to participate in the labour force. Write the two mathematical conditions which a participant's optimal choice must satisfy (write them in terms of c and ℓ rather than Y and ℓ).

B. Write a formula for the worker's reservation wage as a function of non-labour income YN. If YN=$240 then WR=........ and the individual (will/will not) work. If YN=$720 then WR= ....... and the individual......... (will/will not) work.

C. Suppose YN=$2400. Write the formula for this individual's potential income constraint. This individual will choose to work ....... hours. So they will have ....... hours of leisure and spend $........ on consumption.

D. Suppose YN=$100. Write the formula for this individual's potential income constraint. This individual will choose to work .........hours. So they will have .........hours of leisure and spend $ ........ on consumption.

Expert Solution

Rahul Sunny answered 2 years ago

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Suppose marginal utility from leisure is given by 3c0.5/(2ℓ0.5) and marginal utility from consumption is given...

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