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Sketch the individual indifference curve

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Problem: Consider the consumption-leisure choice model we discussed in class. Suppose individual utility is represented by the function U(C,L) = min{C,10L}, where c is consumption and L is leisure. Individuals have a total h = 16 hours that could be divided into work and leisure. Market wage rate is w = 10.

Required:

Question 1: Sketch the individual's indifference curve.

Question 2: Find the optimal consumption and leisure choice.

Question 3: Now suppose wage increases to w = 12. Find the new optimal consumption and leisure choice. What can you say about the income and substitution effect of wage on labor supply?

Reference no: EM132422513

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