Question

Tom faces a labor supply decision. His well-behaved preferences over the two goods, L (leisure) and...

  1. Tom faces a labor supply decision. His well-behaved preferences over the two goods, L (leisure) and C (consumption) can be represented by u = 4√L + C. He can choose how many hours to work at the wage rate w per hour and has no non-labor income. The price per unit of consumption is p, and his total free time is T hours.

    1. Use the tangency method to find Tom’s demand functions for leisure and consumption.

    2. In terms of parameters from the question, what is the most that Tom would be willing to pay to have an extra hour of free time? That is to increase T by 1. Why?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Tom has preferences over consumption and leisure of the following form: U = ln(c1)+ 2 ln(l)+βln(c2),...
Tom has preferences over consumption and leisure of the following form: U = ln(c1)+ 2 ln(l)+βln(c2), where ct denotes the stream of consumption in period t and l, hours of leisure. He can choose to work only when he is young. If he works an hour, he can earn 10 dollars (he can work up to 100 hours). He can also use savings to smooth consumption over time, and if he saves, he will earn an interest rate of 10%...
Santi derives utility from the hours of leisure (l) and from the amount of goods (c)...
Santi derives utility from the hours of leisure (l) and from the amount of goods (c) he consumes. In order to maximize utility, he needs to allocate the 24 hours in the day between leisure hours (l) and work hours (h). Santi has a Cobb-Douglas utility function, u(c, l) = c 2/3 l 1/3 . Assume that all hours not spent working are leisure hours, i.e, h + l = 24. The price of a good is equal to 1...
Santi derives utility from the hours of leisure (l) and from the amount of goods (c)...
Santi derives utility from the hours of leisure (l) and from the amount of goods (c) he consumes. In order to maximize utility, he needs to allocate the 24 hours in the day between leisure hours (l) and work hours (h). Santi has a Cobb-Douglas utility function, u(c,l) = c2/3l1/3. Assume that all hours not spent working are leisure hours, i.e, h + l = 24. The price of a good is equal to 1 and the price of leisure...
Consider a consumer who has preferences over consumption (x) and leisure (L) represented by u(L, x)...
Consider a consumer who has preferences over consumption (x) and leisure (L) represented by u(L, x) = 10 ln L + 5 ln x. The consumer has 24 hours in the day (T = 24) to divide between work and leisure. The consumer can choose however many hours they want to work. For each hour of work they are paid a wage given by w = 10. Consumption (x) costs 1 per unit. (a) Initially suppose that the consumer has...
Suppose Tom has a utility function U=C*L C= consumption L= hours of leisure Tom has 100...
Suppose Tom has a utility function U=C*L C= consumption L= hours of leisure Tom has 100 hours to divide between work and leisure per week wage is $20/hr 1. Write down budget constraint in terms of consumption and hours of work 2.Tom make decisions on hours of work, leisure and consumption to max. utility. Explain why we can collapse this problem to one in which he chooses hours of leisure only 3. Find optimal hours of work and total consumption...
Suppose that the consumer’s preferences are given by U(c,l)=2c ^(1/2) +2l ^(1/2) where c is the...
Suppose that the consumer’s preferences are given by U(c,l)=2c ^(1/2) +2l ^(1/2) where c is the level of consumption and l is leisure. The consumer has to allocate 50 hours between leisure and labour. The real wage rate is 10 per hour and the real non-wage income is 160. Assume that there is no government. Note that (∂c ^(1/2)) / (∂c) = (1/2) c^(-1/2) (a) Write the budget constraint of the household. (b) Solve for the tangency condition using the...
Each day, Luke must decide his leisure hours, L, and his consumption, C. His utility function...
Each day, Luke must decide his leisure hours, L, and his consumption, C. His utility function is given by the following equation ?(?, ?) = (? − 30)(? − 12). Luke receives $50 welfare payment per day. Show all the steps, with the definition of every new notation used in the steps. a) Suppose that Luke’s hourly wage is $5. Find Luke’s daily budget constraint equation and graph it. (5 pts.) b) If Luke’s wage is $5 per hour worked,...
In the labor-leisure model, the representative consumer receives satisfaction from consumption of goods (C) and from...
In the labor-leisure model, the representative consumer receives satisfaction from consumption of goods (C) and from the consumption of Leisure (L). Let C be the composite good with price $1 and L determines the number of hours of leisure this person consumes. Therefore U = f(C,L) for this consumer. This consumer’s consumption is constrained by time and income. Let her non-labor income, V, be $1200 per week, let the hourly wage rate be $8 and h be the number of...
3. Suppose that an individual’s utility function for consumption, C, and leisure, L, is given by...
3. Suppose that an individual’s utility function for consumption, C, and leisure, L, is given by U(C, L) = C 0.5L 0.5 This person is constrained by two equations: (1) an income constraint that shows how consumption can be financed, C = wH + V, where H is hours of work and V is nonlabor income; and (2) a total time constraint (T = 1) L + H = 1 Assume V = 0, then the expenditure-minimization problem is minimize...
Suppose that a worker’s utility (i.e., preferences) with respect to total income (Y) and hours of...
Suppose that a worker’s utility (i.e., preferences) with respect to total income (Y) and hours of leisure time per week (LT) can be represented by the following Cobb-Douglas utility function: U = Y0.4 ∙ LT0.6 (note: A=1; α=0.4; β=0.6) Assume that the market wage is $25 per hour of work (H), and his/her non-labor income is $300 per week. The worker has 70 hours per week to allocate between labor market activity and leisure time (i.e., T = 70). Given...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT