Neoclassical Model of Labor Supply 1. Mary is a waitress at a local coffee shop. The current wage rate is $10 an hour. Per week, she has 110 hours to allocate between consumption and leisure. Additionally, she receives a check for $150 dollars per week in non-labor income from her number one fan, Charlie. Finally, Mary's utility function is given by U(C, L) = C/ L/3. Thus, 201/3 MUL = 3L1/3 L2/3 MUC = 302/3 (a) Write the equation for Mary's budget line. (b) What is Mary's optimal bundle of consumption and leisure? 1 [2 pts] [2 pts] Now, suppose Mary's wage rate rises to $12 an hour. (c) What is Mary's new optimal bundle of consumption and leisure? [2 pts] (d) What does your answer in (d) tell you about the relationship between the income and [2 pts] substitution effects (i.e., which on is larger)? (e) What is Mary's estimated labor supply elasticity given this wage change? What does the [2 pts] value tell you about Mary's responsiveness to this change in wages?