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The Puff.
Join Date: Sep 2007
Location: U.S. Navy
Posts: 1,290
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Reservation wage, help!
Hey guys,
I am trying to calculate the reservation wage for "John" on my problem set. Here is what I know. John has 112 hours a week available for work or leisure. His non-labor income is $25. U(C,L)=C^2+L^2 This is how I did it. MUc=(dU(C,L)/dC)=2C MUl=(dU(C,L)/dL=2L MRS=-(MUc/MUl)=-2C/2L MRS=-C/L MRS=-25/112 Reservation wage = 25/112 This is calculated by taking the slope of the indifference curve at H=0 or Leisure = Max and where C=V (non-labor income). My answer should be correct, but the next question asks, "Will John work at $5 an hour? $10 an hour?" According to my calculations he will... for both. Here is where I start to question myself... The last part of the problem asks me to calculate the employment rate in a town of 100 people with the same utility function as John. This is assuming that 25 people can earn $5 an hour, 25 can earn $10 an hour, 25 can earn $20 an hour, and 25 can earn $100 an hour. All of these people have a non-labor income of $25 also. My calculations give an employment rate of 100% because the reservation wage is just so low. HELP!
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'70 CT1B '11 GTS 300 Super |
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01-22-2009, 12:49 AM
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Join Date: Feb 2008
Posts: 18,566
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you might have to wait till day break for an anwser for this one.. i'm clueless.
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dolor et pavor Copyright |
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01-22-2009, 01:02 AM
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Registered
Join Date: May 2004
Location: Lake Cle Elum - Eastern WA.
Posts: 8,417
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Does the Reservation have a Casino?
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Bob S. 73.5 911T 1969 911T Coo' pay (one owner) 1960 Mercedes 190SL 1962 XKE Roadster (sold) - 13 motorcycles |
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01-22-2009, 06:02 AM
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Registered
Join Date: Aug 2004
Location: Wisconsin
Posts: 4,362
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snow tires
(beat ya to it Jim  )
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01-22-2009, 06:10 AM
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Slumlord
Join Date: May 2001
Location: Canada
Posts: 4,983
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I always did my own homework. But that was pre-internet. And it never really got me anywhere.
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84 Cab - sold! 89 Cab - not quite done 90C4 - winter beater |
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01-22-2009, 06:48 AM
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The Puff.
Join Date: Sep 2007
Location: U.S. Navy
Posts: 1,290
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Quote:
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'70 CT1B '11 GTS 300 Super |
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01-22-2009, 07:18 AM
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Registered
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Quote:
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poof! gone |
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01-22-2009, 07:19 AM
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