1. Suppose that Cookie Monster's production function is given by Y =zF(K,Nd)=z K Nd, with z = 16 and K = 1/16 Suppose also that w = 1. Write his profit maximization problem, find optimal labor demand Nd* and compute the maximum profit * .
2. Suppose that Cookie Monster's utility function is given by u(C,l)=C+4 l+2, Given the w and found in the previous question, h = 16, and G = T = 2, write his utility maximization problem and find his optimal consumption bundle.
3. Give the expression of the production possibilities frontier (PPF).
4. Would the labor market clear with the labor demand and supply found in the first two questions. If not, is labor overpriced or underpriced? In which direction does the labor market push w?
5. Compute the equilibrium.