=+. Suppose that tastes take the form u1c,,2 5 10.5c 2r 1 0.5, 2r 2 21/r

.

a. Set up the worker’s optimization problem assuming his or her leisure endowment is L and his or her wage is w.

b. Set up the Lagrange function corresponding to your maximization problem.

c. Solve for the optimal amount of leisure.

d.* Does leisure consumption increase or decrease as w increases? What does your answer depend on?

e. Relate this to what you know about substitution and wealth effects in this type of problem.