Sheryl's preferences for consumption and leisure can be expressed as U(C, L) = (C – 100) × (L– 40). There are 110 (non-sleeping) hours in the week available to split between work and leisure. Sheryl earns $10 per hour after taxes. She also receives $320 worth of welfare benefits each week regardless of how much she works. (a) Graph Sheryl's budget line. (b) What is Sheryl's marginal rate of substitution when L=$100 and she is on her budget line? (c) what is Sheryl's reservation wage?

Sheryl's preferences for consumption and leisure can be expressed as U(C, L) = (C – 100) × (L– 40). There are 110 (non-sleeping) hours in the week available to split between work and leisure. Sheryl earns $10 per hour after taxes. She also receives $320 worth of welfare benefits each week regardless of how much she works. (a) Graph Sheryl's budget line. (b) What is Sheryl's marginal rate of substitution when L=$100 and she is on her budget line? (c) what is Sheryl's reservation wage?

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter6: Consumer Choice And Demand

Section: Chapter Questions

Problem 2.5P

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