1. Suppose that Cookie Monster's production function is given by zF K, N d = z (KNd)^1/2 , with z = 16 and K = 1 16 . Suppose also that w = 1. Write his profit maximization problem, find optimal labor demand N d * and compute the maximized profit * .

2. Suppose that Cookie Monster's utility function is given by u(C, l) = C + 4 (l + 2)^1/2. Given w and * found in item 1, h = 16 and G = T = 2, write his utility maximization problem and find his optimal consumption bundle C * and l * .

3. Write the production possibility frontier as a function of l.

4. Would the labor market clear with the labor demand and supply found in items 1 and 2? Justify. If not, is w too high or too low? In which direction does the labor market push w?

5. Compute the equilibrium (Hint: You may start from labor market clearing condition then find numerical values for w, N d , N s , Y , l, , C).