Question: How can this be solved without using the Lagrange method ? Consider an economy in which the representative rm produces the nal consumption good using

How can this be solved without using the Lagrange method ?

How can this be solved without using the Lagrange method ? Consider

Consider an economy in which the representative rm produces the nal consumption good using the production function Y : 2N, with z = 1.0. The economy is populated by a representative consumer whose utility function is given by max) = gel/2 +:1_ The total number of hours available to the representative consumer is h = 1. In this economy, the government nances G by taxing the income at a rate t. 1. Solve the consurrmr's problem by nding the optimal leisure (1*) and conSUantion (6'). [05 points] 2. How does increase in t aect the optimal leisure? Explain. [02 points] 3. Calculate the government revenue for t = 2f5, t : 1/21 t = W3: and t = 3,74. [03 points] 4. Find that optimal tax rate t* that maximizes the revenue of the government. [05 points]

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