Let Y represent income and L represent hours of leisure. Mike's utility for income and leisure is U(Y,L) = Y x L so that marginal utility of leisure = Y and the marginal utility of income = L. Total hours available for leisure and work in any given week = 80. He earns $15 per hour.
A) Calculate mike's optimal amount of income and leisure if he has no non labor income.
B) If the government starts a income maintenance policy that pays $X to all non workers and $0 to all workers, at what value of $X will Mike opt out of the labor force and go on welfare.