Suppose that the production function is Y = 2K0.5N0.5. The capital stock is fixed at K = 25. The labor supply curve is NS = 100[(1 t)w]2, where w is the real wage and t is the tax rate on labor income.

(a) Assume that t = 0. What is labor demand?

(b) Still assuming that t = 0, find the labor market equilibrium in terms of labor hours and the

real wage.

(c) Still assuming that t = 0, find full-employment output and total after-tax income for workers.

(d) Assume now that t = 0.5, repeat (a)-(c).

(e) Suppose that a minimum wage of w = 0.9 is introduced. How does this change labor market equilibrium in the case of t = 0? What about the case of t = 0.5? How does this change after-tax income for workers in each case?