Thoreau has preferences for assumption goods (C) and time spent on leisure (L).

Question

Thoreau has preferences for assumption goods (C) and time spent on leisure (L). The utility function is u(C,L) = CL. The household also has a home production technology summarized by a production function. The production function produces consumption goods with labor (1) according to f(l) - 100 Time spent on leisure and labor adds up to 21. L + l = 24. How much time will Thoreau spend in leisure? How many units of consumption good will lie produce? Using the production function from part a), what is the marginal product of labor at the amount of labor in part a)? Now suppose that there is a competitive firm with the production function f(t) - 100 The wage (u) is equal to the marginal product of labor from part b) and the price of output is 1. What is the profit maximizing demand for labor and amount of output? What is the profit?

Explanation / Answer

Thoreau has preferences for assumption goods (C) and time spent on leisure (L).

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