Misty's preferences for consumption and leisure can be expressed as U(C, L) = (C - 100) (L - 40).

This utility function implies that Misty's marginal utility of leisure is C - 100 and her marginal utility of consumption is L - 40. There are 110 hours in the week available to split between work and leisure. Misty earns $10 per hour after taxes. She also receives $320 worth of assistance benefits each week regardless of how much she works.

1

a. Graph Misty's budget line. b. What is Misty's marginal rate of substitution when L = 100 and she is on her budget line?

c. What is Misty's reservation wage? d. What are Misty's optimal amounts of consumption and leisure?