Question 1:Suppose that the production function isY=9K0.5N0.5.

With this production function, the marginal product of

labor isMPN=4.5K0.5N-0.5. The capital stock is

K = 25.

The labor supply curve isNS=100

3(1-t)w42, where

w is the real wage rate,t is the tax rate on labor income,

and hence (1-t)w is the after-tax real wage rate.

a.Assume that the tax rate on labor income,t, equals

zero. Find the equation of the labor demand curve.

Calculate the equilibrium levels of the real wage

and employment, the level of full-employment

output, and the total after-tax wage income of

workers.

b.Repeat part (a) under the assumption that the tax

rate on labor income,t, equals 0.6.

c.Suppose that a minimum wage ofw=2 is im[1]

posed. If the tax rate on labor income,t, equals

zero, what are the resulting values of employment

and the real wage? Does the introduction of the

minimum wage increase the total income of work[1]

ers, taken as a group?