Optimal Labor and Consumption Choice
A farmer's preferences for daily free time (t) and consumption of grain (c) are described by the utility function U(t, c) = 4√t + c. The farmer's production of grain (y) is a function of their hours of work (h), given by y = 2√(2h), where h = 24 - t. The farmer has an outside option that provides a utility level of 21, and will not accept any arrangement that provides less than this. A landowner, who owns the land, wants to offer the farmer a contract that maximizes the landowner's own share of the grain (the surplus, y - c). To do this, the landowner must find the allocation that is on the boundary of the feasible production set and provides the farmer with exactly their reservation utility. Calculate the optimal number of free time hours (t) for the farmer under this contract.
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Introduction to Microeconomics Course
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Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ
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