(Solved): 2. Consider the neo-classical model of labor supply. a) Explain what the MRS measures and sketch a ...

2. Consider the neo-classical model of labor supply. a) Explain what the MRS measures and sketch a typical worker's indifference curves. b) Now add a budget constraint and show the worker's optimal amount of consumption and leisure. What condition holds at the optimal point? c) How many hours will a person allocate to leisure activities if her indifference curves between consumption and leisure are concave to the origin (that is, they are shaped as in the graph below)? Illustrate the optimization in a graph.