B. Albert works for a construction company. He has 70 hours a week available to divide between construction work and leisure, and he has no other sources of income. Albert is allowed to work as many hours (not exceeding 70) as he wishes to. His utility function is U(c, r) = cr where c is his income spent on goods and r is the number of hours of leisure that he has per week. Suppose that the hourly wage is w dollars. Find Albert's demand for leisure as a function of w. How many hours will Albert work at wage w?
B. Albert works for a construction company. He has 70 hours a week available to divide between construction work and leisure, and he has no other sources of income. Albert is allowed to work as many hours (not exceeding 70) as he wishes to. His utility function is U(c, r) = cr where c is his income spent on goods and r is the number of hours of leisure that he has per week. Suppose that the hourly wage is w dollars. Find Albert's demand for leisure as a function of w. How many hours will Albert work at wage w?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:B. Albert works for a construction company. He has 70 hours a week available to
divide between construction work and leisure, and he has no other sources of income.
Albert is allowed to work as many hours (not exceeding 70) as he wishes to. His utility
function is U(c, r) =
= cr where c is his income spent on goods and r is the number of
hours of leisure that he has per
week.
• Suppose that the hourly wage is w dollars. Find Albert's demand for leisure as a
function of w. How many hours will Albert work at wage w?
1
Albert is currently being paid $5 per hour. How many hours will he choose to
work?
The company considers to raise Albert's hourly wage from $5 to $10. How many
hours will he choose to work at the new wage?
Assume now that the company offer "double pay" for overtime. That is, Albert is
paid $10 an hour for every hour beyond the amount he chose in part 2. Draw his
new budget set and find the number of hours he will work under this new wage
scheme.
Find the substitution and income effects on leisure if the hourly wage changes from
$5 to $10.
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