Compute the optimum combination of consumption and leisure


Provide the utility function for consumption and leisure, compute the optimum combination of consumption and leisure.

Mike's utility of consumption and leisure is U(C, L) =C*L, so that his marginal rate of substitution is C/L. There are 168 hours in the week and he earns $10 an hour.

a)What is his optimal combination of C and L?

b) If the government starts a welfare policy that pays B to all non workers and 0 to all workers, at what value of B will Mike opt out of the labor force and go on welfare?

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Business Economics: Compute the optimum combination of consumption and leisure
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