2. Utility maximization - Trading off labor and leisure

The indifference curves on the following graph show Megan's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Megan spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 50 hours (and thus has 50 hours of leisure) and earns $400 per week.

Use the grey point (star symbol) to indicate Megan's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes.

Use the grey point (star symbol) to indicate Megan's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. 1000 900 Initial bundle 800 700 600 $350 Unemployment Benefits 500 A CONSUMPTION (Dollars per week) 400 Equivalent Bundle N C 300 200 U. $200 Unemployment Benefits 100 O 0 10 20 30 40 0 50 60 70 80 90 100 110 Equivalent Bundle2 LEISURE (Hours per week) Now, suppose that Megan is laid off, but she is eligible to collect unemployment benefits of $350 per week