Question 2 (30 points) John works in a shoe factory. He can work as many hours per day as he wishes at a wage rate w. Let C be the amount of dollars he spends on consumer goods and R be the number of hours of leisure that he chooses. John's preferences are represented by U(C, R) = CR utility function Question 2 Part a John earns $8 an hour and has 18 hours per day to devote to labor or leisure, and he has $16 of nonlabor income per day. Draw John's indifference curves, budget constraints and solve for his optimal consumption and leisure choices. 1 Question 2 Part b Suppose that John's wage rate rises to $12 an hour. Again, find his 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.