Shelly’s preferences for consumption and leisure can be expressed as U(C, L) = (C - 200) * (L - 80) This utility function implies that Shelly’s marginal utility of leisure is C - 200 and her marginal utility of consumption is L - 80. There are 168 hours in the week available to split between work and leisure. Shelly earns $5 per hour after taxes. She also receives $320 worth of welfare benefits each week regardless of how much she works. a. Graph Shelly’s budget line. b. What is Shelly’s marginal rate of substitution when L = 100 and she is on her budget line? c. What is Shelly’s reservation wage? d. Find Shelly’s optimal amount of consumption and leisure.

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