Problem
Mrs. Smith has a guaranteed income of $10 per day from an inheritance. Her preferences require her always to spend half her potential income on leisure (H) and consumption (C).
a. What is Mrs. Smith's budget constraint in this situation?
b. How many hours will Mrs. Smith devote to work and to leisure in order to maximize her utility, given that her market wage is $1.25? $2.50? $5.00? $10.00?
c. Graph the four different budget constraints and sketch in Mrs. Smith's utility-maximizing choices.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.