Question
I'm not sure how to complete this Consider an individual who has preferences over consumption and leisure. The utility function is ln (c) + (1
I'm not sure how to complete this
Consider an individual who has preferences over consumption and leisure. The utility function is ln (c) + (1 ) ln (l), and his budget constraint is c = w (1 l) where c is consumption, l is leisure time and w is the wage rate. The total time available for work or leisure is normalized to 1. The marginal utility of leisure is MUl = (1 ) /l and the marginal utility of consumption is MUc = /c.
1. Why should the relation MUc w = MUl hold at an optimum?
2. Show that labor supply is independent of the wage rate, w. Explain.
3. Is this a good model of labor supply in the long-run?
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