Question

Consider the simple leisure model in which the individual chooses between leisure (L) and money income (M). The marginal utility of leisure (MUL) is 15 and the marginal utility of money (MUM) is 3. At the optimum, the wage rate:_______

a. $45
b. $0.20
c. $5
d. $15

Answer 1

Wage rate is $5

Step-by-step explanation:

The marginal utility of money=marginal utility of leisure/wage rate

When the formula is rearranged,wage rate is given thus:

wage rate=marginal utility of leisure/marginal utility of money

wage rate=15/3

wage rate =$5

In other words, the correct option is C,wage rate is $5

Option D would have been correct if the requirement was to calculate marinal utility of leisure