1. Suppose that the production function has the form

y=Al+B

Where y is output, lis labor input, A is a positive constant, and B is another constant, which may be positive, negative, or zero.

1. Graph the level of output, y, versus the quantity of labor input, l.
2. Is the marginal product of labor positive? Is it diminishing in l?
3. Describe the wealth and substitution effects from an increase in the coefficient A. What are the effects on a household's work effort, l, output, y, and consumption, c?
4. Describe the wealth and substitution effects from an increase in the coefficient B. What are the effects on a household's work effort, l, output, y, and consumption, c?