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Consider an economy in which the representative consumer preferences are described by U(C, l) = 0.9...

Consider an economy in which the representative consumer preferences are described by U(C, l) = 0.9 ln(C) + 0.1 ln(l). The total number of hours available to the representative consumer is h = 1, and the market real wage is w. The representative firm produces the final consumption good using the technology function Y = zN where N is the labour, and z = 2. Assume the government sets the level of its spending to G = 0.75 which has to be financed through a proportional tax t.

1. Given the linear specification of the production function, what will be the equilibrium wage w* ? .

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Answer #1

Solution profit Y-ZN Y = QN , Z=2 function for the firm x =P Y-cost = Y-WN të 2N-WN maximising profits Da - Dow zo W = 2

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