Please answer the following question. No slide material is needed.

1. Consider the labor supply problem in Lecture 3_1.pdf. Suppose instead of having an income target, the worker's reference point essentially says that \"I expect to work 8 hours per day.\" The worker evaluates income in a standard way (see the rst half of Lecture 3_1.pdf), but the cost of effort now is reference dependent. Of course, the worker is happier (in the gain region) if she works less than 8 hours per day, and vice versa. To summarize, the worker's utility function is wh LILSW if h > 8 U h c h = 16 ' _ 7 ( ) 8( ) { wh + \"Iggy, if h 1. Suppose the worker works h hours and h 1. What can you conclude about the optimal h based on your answer in question 1.b? Do you think it is possible that sometimes when w increases, the optimal it decreases