Consider an economy with one representative consumer and one representative firm. There is no government (no...

 

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Consider an economy with one representative consumer and one representative firm. There is no government (no taxes). The consumer's utility function is U = log(c)-N° where c is consumption and N° is labor supply. The consumer's budget constraint is c = wN° + t in real terms. The representative firm has a standard Cobb-Douglas production function F(z,K,N) = zK N-4. Suppose z-1 and K=1 so that the production function is simplified to F(N) = N-4. Set up the labor market clearing condition and derive an equation that implicitly determines the equilibrium wage. %3D %3! %3D Consider an economy with one representative consumer and one representative firm. There is no government (no taxes). The consumer's utility function is U = log(c)-N° where c is consumption and N° is labor supply. The consumer's budget constraint is c = wN° + t in real terms. The representative firm has a standard Cobb-Douglas production function F(z,K,N) = zK N-4. Suppose z-1 and K=1 so that the production function is simplified to F(N) = N-4. Set up the labor market clearing condition and derive an equation that implicitly determines the equilibrium wage. %3D %3! %3D

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