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May 7th, 2012, 06:59 AM   #1
Joined: May 2012

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Help with budget constraint and utility maximisation

Hi I really need help with the following question:

Consider an economy with a single consumer whose preferences are given by
U = c-(l)^2
Where c is the consumers daily consumption of the consumption good and l is the number of hours that she spends producing the consumption good daily.
She can Produce 8 units of the consumption good in an hour and there are 24 hours in a day.
(a) Write down the consumers budget constraint and interpret it.
(b) How many hours per day does the consumer choose to work? How many units
of the consumption good does she get to consume in a day?

It confuses me that the utility preference is in this form c-l^2. I have looked online and only seem to find information on how to calculate cobb douglas utility functions. So far I've managed to draw a graph with consumption on y axis and leisure on x axis. Formulating the BC at pc=wl, here i assumed this to be c=8l. I'm left confused and my answers for sure don't add up

Any advice would be greatly appreciated
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