Percy is an aspiring young English poet and his preference for leisure and consumption can...
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Percy is an aspiring young English poet and his preference for leisure and consumption can be expressed by the following utility function U(C,L) = (C 140) x (L 70) If Percy writes poems his average wage per hour are 10 Pounds Sterling. However, as an heir apparent of a rich noble English fam- ily he also receives a non-labour income of 1000 Pounds Sterling per week. Percy also does not need any sleep, so we can fairly as- sume that he can spend all 168 hours in week writing poems if he decides to do so. a) Draw Percy's budget line. b) What is Percy's marginal rate of substitution (MRS) if L = 100 and he is on his budget line? c) What is Percy's reservation wage? d) What is Percy's optimal distribution of leisure and consumption? That is, how many hours of leisure time Percy will have if he decides to maximise his utility
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