Question 1

(a) Let the utility function be U = log(x) – l, where l is labour and x...

Question

Question 1

(a) Let the utility function be U = log(x) – l, where l is labour and x is
consumption. Find the level of labour supply if the wage rate w=10.(b) If an overtime premium is introduced which raises w to 12 for all excess
hours, what is the effect on labour supply?Hint: Full time work means l=1.(c) Clarify your answer using a diagram.

Robert · Accepted Answer

Question 1
(a) Let the utility function be U = log(x) – l, where l is labour and x is consumption. Find the level of labour supply if the wage rate w=10.
(b) If an overtime premium is introduced which raises w to 12 for all excess hours, what is the effect on labour supply?
Hint: Full time work means l=1.
(c) Clarify your answer using a diagram.
Answer:
a. x=l*10
U=log(10*l)-l= 1+ log l -l
Assuming log is log base 10, and not ln by convention (results would be easier with ln, as we do away with base conversion formulae).
FOC wrt.

Question 1 (a) Let the utility function be U = log(x) – l, where l is labour and x is consumption. Find the level of labour supply if the wage rate w=10. (b) If an overtime premium is introduced which...

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