Reservation Wage
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I understand the definition of a reservation wage, but I am not sure how to essentially compute it. Here is a typical question I have come across:
John's utility function is U(C, L) = C*L Where C is Consumption, and L is Leisure.
The most Leisure John can get in a week is 168 hours. Regardless how many hours a week John works, he gets a $200 allowance from his father. What is his reservation wage?
Can you walk me through the steps involved to compute the reservation wage?
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This solution provides a calculation of reservation wage.
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The reservation wage is defined as the MRS when working no hours. ...
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