1. How many hours will a person allocate to leisure activities if her indifference curves betweenconsumption and leisure activities are concave (NOT convex) to the origin?2. Tom earns $15 per hour for up to 40 hours of work each week. He is paid $30 per hour forevery hour in excess of 40. Tom faces a 20 percent tax rate and pays $4 per hour in childcare expenses for each hour he works. Tom receives $80 in child support payments each week.There are 110 (non-sleeping) hours in the week. Graph Tom's weekly budget line.3. John's utility function is U(C, L) = C²/² L?/2. The most leisure time he can consume is 110hours. His wage rate is $10. Find John's optimal amount of consumption and hours forleisure and work.4. Suppose the wage rate increased (e.g. from $10 to $20), how many hours would a worker takefor work and leisure activities? Assume that the income effect dominates the substitutioneffect, draw a graph and explain in detail.5. Cindy gains utility from consumption C and Leisure L. Then most leisure she can consumein any given week is 110 hours. Her utility function is U(C, L) = C × L. Cindy receives $660each week from her great-grandmother.(a) Find her marginal rate of substitution | |M RS|.(b) Find her reservation wage.(c) Interpret the reservation wage.6. 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 andleisure. Sheryl earns $10 per hour after taxes. She also receives $320 worth of welfare benefitseach 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 budgetline?(c) what is Sheryl's reservation wage?1(d) Find Sheryl's optimal amount of consumption and leisure.7. Use a graph and derive the labor supply curve of a worker. Explain in detail.

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1. How many hours will a person allocate to leisure activities if her indifference curves between consumption and leisure activities are concave (NOT convex) to the origin?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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