Dudley's Utility Function for Goods and Leisure Is U(G, L)

question 31

Short Answer

Dudley's utility function for goods and leisure is U(G, L) = G - (20 - L)(20 - L), where G is consumption of goods and L is the number of hours of leisure per day. Goods cost $1 per unit.
a. If Dudley had an income from nonlabor sources of $25 per day and could work as much as he chose to but would get zero wages, how much would he work?
b. Sketch Dudley's indifference curves on a graph with leisure on the horizontal axis and income on the vertical axis. If Dudley's nonlabor income were $25 a day and he could work as much as he wished for $10 an hour, how many hours a day would he choose to work?

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Definitions:

Variables

Elements, features, or factors that are likely to vary or change within the context of a study or experiment.

Positive Correlation

A relationship between two variables where both either increase or decrease together, showing a direct association.

Alcohol Consumption

Alcohol consumption refers to the drinking of alcoholic beverages and can range from light use to heavy drinking or alcohol dependence.

Representative Sample

A subset of a population that accurately reflects the characteristics of the larger group from which it is drawn.