5. a b cthank you 5. Jesse's utility function is given by U(L, C) = C(L+8). There are 16 hour in a day. Hiswage is $10/hr. and he has $40 non-labor income.a. Find the budget constraint and then the optimal number of hours he should spendin Leisure (L).b. Is it possible for Jesse to consume $100 and have 10 hours of leisure? Explain.c. If the wage changed to $5/hr would Jesse work more or less? Are Leisure andConsumption gross complements or substitutes?d. Using the optimal amount of work from parts a and c, what is the elasticity ofJesse's labor supply? Is Jesse's labor supply elastic?

Answered: Jesse's utility function is given by…

Jesse's utility function is given by U(L, C) = C(L+8). There are 16 hour in a day. His wage is $10/hr, and he has $40 non-labor income.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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EXERCISE 7 Aisha is considering how to allocate the next 6 hours of her free time. She could choose between leisure (L) and helping her neighbour with the house chores. If she decides to help her neighbour, she is going to get paid at £25 per hour, which she can then spend on her favourite pizza (P). Suppose the price of pizza is £12.50. Aisha's preferences for leisure and pizza are given by the following utility function: U(L, P) = 3L + P. (MU₁ = 3, MUp = 1). a) Write down Aisha's budget equation and draw the corresponding budget line. Clearly label the axes and calculate the coordinates of the points of intersection of the budget line with each axis. b) Calculate Aisha's marginal rate of substitution between leisure and pizza. Explain the concept of MRS and interpret the figure obtained. c) Find Aisha's optimal consumption bundle, both algebraically and graphically. Explain your reasoning. d) Would Aisha's optimal choice change if she could get a discount on her pizza purchases so…
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