Answer to Question #251291 in Microeconomics for queen

Question

Amanda faces a tradeoff between labor (𝐿) and leisure (𝑅). She consumes a composite good (𝐶). When she works, she earns an hourly wage of $21.00, and she has a maximum of 24 hours to spend on labor and leisure together. Whatever time she does not spend working, she spends on leisure. Amanda starts with an initial endowment of 20.00 units of the composite good, which she can buy and sell freely at a market price of $13.00. 

Given this information, what is Amanda's full or implicit income? 

Answer 1

Solution:

Implicit income refers to income derived from non-monetary activities: such as the revenue received from starting a business at the expense of dropping out of college. They refer to costs are those which occur, but are not seen. In other words, these are the costs that are not directly linked to an expenditure.

Given the above information, Amanda’s full or implicit income = $\$$764

This is calculated as follows:

When she works, she earns an hourly wage of $21.00, therefore when she works for 24 hours, she will earn:

= $\$$21 × 24

= $\$$504

Also, when Amanda sells all the 20 units of the composite good, she will earn:

= $\$$13 × 20

= $\$$260

Therefore, Amanda's full income would be:

= $\$$504 + $260

= $\$$764