36. As explained in lecture, an individual will sell some of his or her leisure to the labor market if the market wage, w, is greater than his or her reservation wage, ! * .
(a) [2 points] Suppose Michelle, a married woman, has non--labor income (N) of $50 per day (she receives some of her husband's income). Using the utility function from the
8
previous question and recalling that the slope of the indifference curve is !"# = -
!
!,
calculate Michelle's reservation wage.
(b) [2 points] Suppose Michelle was offered a job paying $2 per hour. Would she take this job? Why or why not? What would happen to her level of daily utility if she took the job paying $2 per hour and worked 4 hours per day?
(c) [2 points] Now, suppose that Michelle is offered a job that pays $5 per hour. Would she take this job? If Michelle maximizes her utility, how many hours would she like to work?
(d) [2 points] What is the smallest market wage that Michelle would require to enter the labor market if her non--labor income was $200 per day?
