Illustrate what is his reservation wage

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Reference no: EM1371329

Q. Shane currently receives welfare in amount of $80 per day if he doesn't work. His utility function is U(C, L) = C1/2L. Wages=$9 and he has 18 hours to allocate between work and leisure.

1. Find his utility maximizing H and L. Assume he is not eligible for welfare.

2. Now assume he is eligible for welfare. Does he take welfare or work?

3. Assume he takes welfare and does not work. Illustrate what is his reservation wage? He will not lose his welfare if he works.

4. Suppose he is working and receives no welfare, illustrate what is minimum overtime pay needed for him to work 1 hour of overtime?

Reference no: EM1371329

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