Jake works at State Farm selling insurance. Jake's utility function for consumption c and leisure I...

 

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"Jake" works at State Farm selling insurance. Jake's utility function for consumption c and leisure I is u(c, l) = ln(c) + ln(1). For now ignore profits and taxes T so Jake's budget constraint is: pc = w(h − 1). The price of consumption is normalized to p = 1, Jake's hourly wage is w = $20, and he has h = 24 hours available to divide between work and leisure each day. 1. Solve Jake's utility maximization problem for the optimal decisions c* and l*. 2. Suppose Jake wins $60 from a lottery ticket. Solve for his new optimal decisions c* and 1*. "Jake" works at State Farm selling insurance. Jake's utility function for consumption c and leisure I is u(c, l) = ln(c) + ln(1). For now ignore profits and taxes T so Jake's budget constraint is: pc = w(h − 1). The price of consumption is normalized to p = 1, Jake's hourly wage is w = $20, and he has h = 24 hours available to divide between work and leisure each day. 1. Solve Jake's utility maximization problem for the optimal decisions c* and l*. 2. Suppose Jake wins $60 from a lottery ticket. Solve for his new optimal decisions c* and 1*.

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