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Suppose an individual has preferences over consumption, C and leisure, R ac- cording to the utility function u(C, R) = : InC + ; In

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Suppose an individual has preferences over consumption, C and leisure, R ac- cording to the utility function u(C, R) = : InC + ; In R. She earns a wage, w from supplying labour to the labour market and faces a price p. for consump- tion. She also has non-wage income, S she can use to fund consumption. (i) Derive the individual's optimal bundle (C", R*) . Given your knowledge of consumption theory, does your answer match your expectations? [10 marks]

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