What is john current reservation wage

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Reference no: EM133428525

Question: Assume that John's utility is given by: U = C*L

If you have taken calculus, you will see that MUC = L and MUL=C. (If not, just take this as a given.) John is not working, but currently consumes $1,000 a week as part of a universal basic income program. Assume that he has 16 hours a day and 7 days a week to dedicate to either labor or leisure.

a) What is John's current reservation wage? Show your work.

b) How would the amount of the universal basic income program have to change in order to induce John to take a minimum wage job at $7.25/hour?

c) If John had a different utility function such that more weight was place on leisure (maybe U = C*2L), what would happen to his reservation wage? No calculations needed just explain up, down, unchanged and why

Reference no: EM133428525

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