solutions

Assume that a worker has the Utility Function U(C,L) - C 0.60 [ 0.40 "C" refers to consumption in dollars and "L" to hours of leisure in a day. The worker has an offered wage of $10 per hour, 20 hours available for leisure or work per day, and $90 dollars a day from non-labour income. a) Find the budget constraint equation of the individual. b) Find the optimal choice for the individual in terms of units of leisure and income, the number of hours worked and the utility obtained. c) Make a well labeled graph that illustrates the solution to the problem of the worker. d) Find the supply equation of the individual. e) Calculate the reservation wage and briefly explain the definition. The wage when T - L or hours of work equal 0. Problem 5 The Marginal Benefit of hiring workers for a firm is given by: MB =20,000 - X. The Marginal Cost to the firm of hiring workers is given by: MC = 10,000 + X?. a. Please calculate the optimal amount of workers that the organization should hire. b. Draw a diagram of the solution. c. Briefly explain the slopes of the Marginal Benefit and Marginal Cost Curves. Why does it cost more to hire each additional worker? Why the benefit of each additional worker decreases? d. If the wage of the workers increase what will the firm do? Illustrate the solution. Problem 6 Assume that a CONSUMER FACES Prices of $4 and $2 FOR GOOD X and GOOD Y. and the consumer has a Utility function given by U(X, Y) -xy. a) How much income (M) he she should receive to obtain Utility of 200 units. b) Illustrate solution