Problem 1: Labor-Leisure Choice. Kim has utility over consumption c and leisure represented by U (c, I) = c1/4'3/4 Kim is endowed with 2000 hours to engage in either labor or leisure. Her hourly wage is w = $15. Recall: This Cobb-Douglas utility function specification implies that Kim will spend 1 4 of her endowment on c and the remaining 3 4 of her endowment on `. a) Draw Kim's budget constraint. b) Find Kim's optimal level of consumption (c), leisure (), and hours worked (h). c) Suppose that Kim's hourly wage increases to w = $18. Draw her new budget con- straint. d) Find Kim's new optimal levels of consumption, leisure, and hours worked.

Problem 1: Labor-Leisure Choice. Kim has utility over consumption c and leisure represented by U (c, I) = c1/4'3/4 Kim is endowed with 2000 hours to engage in either labor or leisure. Her hourly wage is w = $15. Recall: This Cobb-Douglas utility function specification implies that Kim will spend 1 4 of her endowment on c and the remaining 3 4 of her endowment on `. a) Draw Kim's budget constraint. b) Find Kim's optimal level of consumption (c), leisure (), and hours worked (h). c) Suppose that Kim's hourly wage increases to w = $18. Draw her new budget con- straint. d) Find Kim's new optimal levels of consumption, leisure, and hours worked.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.13P

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