Question: please help me answer this question. thanks also please explain the answer and draw any relvant diagram to support Q6. Assume an individual has a

please help me answer this question. thanks

also please explain the answer and draw any relvant diagram to support

please help me answer this question. thanks also please explain the answer

Q6. Assume an individual has a utility function of this form U(C,L) = 12 + 2(CXL) This utility function implies that the individual's marginal utility of leisure is 2C and her marginal utility of consumption is 2L where C and L represent the amount of consumption good and hours of leisure, respectively. The individual has an endowment of V dollars in non- labour income and T = 16 hours to either work (h) or use for leisure (L). Assume also that this individual has to pay 25 % labour earnings tax to the government. a) How much utility does the individual receive if she consumes C = 5 and works h = 7 hours? (4 points) b) Write down and graphically indicate the budget constraint of the individual. Let p=price of consumption good and w=before tax wage rate. (6 points) c) Assume the price of each unit of consumption good p = 15 and the before tax wage rate for each hour of work w = 16, and V = 30 dollars. What is the optimal amount of consumption and leisure? (12 points) d) Assume a cash grant welfare program is instituted which pays M = 45 dollars for individuals who do not work. Compute the new optimal labour supply for this individual under the welfare program. Assume that prior to the welfare program, p = 15, w = 16, and V =30 (as in part c). Does the individual accept the welfare program and not work? Show why or why not. (8 points)

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