Home » Suppose Jim’s utility for consumption and leisure is U(C, L) = C^0.5 L^0. His wage rate is w dollars per hour and he has \$V in his bank account…

# Suppose Jim’s utility for consumption and leisure is U(C, L) = C^0.5 L^0. His wage rate is w dollars per hour and he has \$V in his bank account…

Suppose Jim’s utility for consumption and leisure is U(C, L) = C^0.5 L^0.5. His wage rate is w dollarsper hour and he has \$V in his bank account (non-labor income). The price of the consumptiongood is \$1, and he has T hours in the week.(a) Derive Jim’s optimal labor supply (that is, hours worked as a function of the wage, w, and hisnon-labor market income V).(b) Find Jim’s reservation wage, wR.(c) Suppose V=\$5, what is Jim’s labor supply function? Draw his labor supply curve. What canyou say about his income and substitution effects?(d) Suppose V=\$0, what is Jim’s labor supply function now? Draw his labor supply curve. Whathappened to his income and substitution effects

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