Consider an economy made up of a representative household, a government that spends and finances it by collecting lump sum taxes. There is no trade nor investment in this economy. The price of consumption is equal to one (p_c=1).

Suppose the representative household in the economy has the following utility function and marginal rate of substitution (MRS):

u(C,L) = 5ln(C) +14ln(L) which implies that the MRS _L,C = 14C/5L where C is consumption and L is leisure hours of the 244 hours available.

Firms have the following technology where Y is the economy’s goods and services with 910 units of physical capital (K) and N being labor used with the capital share of income as 0.32 and Total Factor Productivity given as 6.5:

Y=zK^aN^(1-a) which implies that the marginal product of labor for this economy is as follows: MP_N = (1-a) zK^aN^(-a).

Production Schedule

Number of Workers	0	1	2	3	4	5
Total Revenue or Output	0	210	399	573	692	781

QUESTION 1

Consider the One Period Production Economy above. Suppose wages are 3, profit is 64 and taxes are 22. What is the most consumption that can be taken

QUESTION 2

Consider the One Period Production Economy above. Suppose wages are 3, profit is 64 and taxes are 22. Without time constraints, what is the most leisure that can be taken? (i.e. What is the intercept on the leisure axis?)

QUESTION 3

Consider the One Period Production Economy above. Suppose wages are 3, profit is 64 and taxes are 22. With time constraints, what is the most leisure that can be taken?

QUESTION 4

Consider the One Period Production Economy above. Suppose wages are 3, profit is 64 and taxes are 22. What is the optimal amount of leisure in this situation?

QUESTION 5

1. Consider the One Period Production Economy above. Suppose wages are 3, profit is 64 and taxes are 22. What is the optimal amount of consumption in this situation?

QUESTION 6

1. Consider the One Period Production Economy above. What is the utility for the representative consumer from a bundle of 35 consumption and 45 leisure?

QUESTION 7

1. Consider the One Period Production Economy above. What is the utility for the representative consumer from a bundle of 45 consumption and 35 leisure?

QUESTION 8

1. Consider the One Period Production Economy above. What is the utility for the representative consumer from a bundle of 19 consumption and 60 leisure?

QUESTION 9

1. The representative consumer prefers the bundle which provides the most:

   		consumption
   		leisure
   		utility
   		MRS

Answer rating: 100% (QA)

QUESTION 1 ANSWER Taxes 22 Wages 3 Profits 64 Most Consumption 149 QUESTION 2 ANSWER Taxes 22 Wages 3 Profits 64 Most Leisure 20 EXPLANATION In this economy the tax is a lump sum tax which means that ... View the full answer