Sara's preferences for consumption and leisure can be expressed as: U(C, L) = (2C-200)*(2L – 80). where C denotes consumption and L denotes leisure. There are 110 hours in the week available to split between work and leisure. Sara earns £10 per hour after taxes. She also receives £500 worth of assistance benefits each week regardless of how much she works. a. Find Sara's marginal utility for leisure and their marginal utility for consumption. b. What is Sara's reservation wage? c. Graph Sara's budget line. d. What is Sara's marginal rate of substitution when L = 100 and she is on her budget line? e. Find Sara's optimal amount of consumption and leisure.
