Tom gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 112 hours. His wage is $20. His utility function is U(C,L) = C^3/4*L^1/4. Tom receives 640 each week from her great-grandmother.
a. What is the marginal rate of substitution of leisure for consumption?
b. Write down the equation for this individual’s budget constraint? Graph it.
c. Solve for this individual’s optimal level of consumption, leisure, and hours of work
d. What is Tom’s reservation wage?