2. Utility maximization - Trading off labor and leisureThe indifference curves on the following graph show Amy's preferences for leisure and consumption for increasing levels of utility, such that her utilityincreases in both consumption and leisure. Assuming that Amy spends 68 hours each week sleeping, she has a maximum of 100 hours available to herfor leisure if she does not work at all. Initially, she works 45 hours (and thus has 55 hours of leisure) and earns $250 per week.Use the grey point (star symbol) to indicate Amy's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes.?CONSUMPTION (Dollars per week)10009008007006005004003002001000010 20 30 40 50 60 7080LEISURE (Hours per week)90 100 110Initial bundle$200 Unemployment BenefitsEquivalent Bundle,$100 Unemployment BenefitsEquivalent BundleNow, suppose that Amy is laid off, but she is eligible to collect unemployment benefits of $200 per week.Use the black point (cross symbol) to represent Amy's unemployment point on the previous graph when she consumes $200 per week and has 100hours of leisure.Suppose that after a month of being unemployed, Amy's friend Van suggests that she apply for a job at his company, where she could earn herprevious salary again by working 45 hours per week.

The utility maximization is a concept that describes the process of choosing the option that…

Now, suppose that Amy is laid off, but she is eligible to collect unemployment benefits of $200 per week. Use the black point (cross symbol) to represent Amy's unemployment point on the previous graph when she consumes $200 per week and has 100 hours of leisure. Suppose that after a month of being unemployed, Amy's friend Van suggests that she apply for a job at his company, where she could earn her previous salary again by working 45 hours per week.

Now, suppose that Amy is laid off, but she is eligible to collect unemployment benefits of $200 per week. Use the black point (cross symbol) to represent Amy's unemployment point on the previous graph when she consumes $200 per week and has 100 hours of leisure. Suppose that after a month of being unemployed, Amy's friend Van suggests that she apply for a job at his company, where she could earn her previous salary again by working 45 hours per week.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. Utility maximization - Trading off labor and leisure
The indifference curves on the following graph show Amy's preferences for leisure and consumption for increasing levels of utility, such that her utility
increases in both consumption and leisure. Assuming that Amy spends 68 hours each week sleeping, she has a maximum of 100 hours available to her
for leisure if she does not work at all. Initially, she works 45 hours (and thus has 55 hours of leisure) and earns $250 per week.
Use the grey point (star symbol) to indicate Amy's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes.
?
CONSUMPTION (Dollars per week)
1000
900
800
700
600
500
400
300
200
100
0
0
10 20 30 40 50 60 70
80
LEISURE (Hours per week)
90 100 110
Initial bundle
$200 Unemployment Benefits
Equivalent Bundle,
$100 Unemployment Benefits
Equivalent Bundle
Now, suppose that Amy is laid off, but she is eligible to collect unemployment benefits of $200 per week.
Use the black point (cross symbol) to represent Amy's unemployment point on the previous graph when she consumes $200 per week and has 100
hours of leisure.
Suppose that after a month of being unemployed, Amy's friend Van suggests that she apply for a job at his company, where she could earn her
previous salary again by working 45 hours per week.

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