Question
Mia is a registered nurse. She has 18 hours per day to devote to labor or leisure, and has $20 nonlabor income per day. She
Mia is a registered nurse. She has 18 hours per day to devote to labor or leisure, and has $20 nonlabor income per day. She is paid $10 per hour for the first 8 hours of work and $15 per hour for overtime (for hours worked over 8 hours). Mia’s preferences are represented by U(C,R) = CR utility function, where C is the amount of dollars she spends on consumer goods and R be the number of hours of leisure that she chooses.
Part a: Assuming she can work as many hours per day as she wishes, draw Mia’s indifference curves, budget constraints and solve for her optimal consumption and leisure choices.
Part b: Suppose that Mia’s wage rate rises to $11 an hour for the first 8 hours. She is still paid $15 per hour for overtime. Again, find her optimal choice. Decompose the total change in demand due to a price change into a substitution effect, ordinary income effect and endowment income effect and graphically demonstrate each effect.
Step by Step Solution
3.31 Rating (157 Votes )
There are 3 Steps involved in it
Step: 1
Step 12 To maximize her utility Mia must choose the combination of consu...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started