The representative consumer's utility function is -(11/8), 1+1/5 n 1+1/ u(c, n) = lnc- in which...
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The representative consumer's utility function is -(11/8), 1+1/5 n 1+1/ u(c, n) = lnc- in which the parameter (the Greek lowercase letter "xi") is a fixed number. Suppose the labor income tax rate is t=0. a. Based on the utility function above, construct the Lagrange function. b. Based on the Lagrange function from part a, obtain the three first-order conditions. c. Using the first-order conditions from part b, construct the consumption-labor (aka consumption-leisure) optimality condition. Provide algebraic steps as needed for clarity. d. Based on the consumption-labor (aka consumption-leisure) optimality condition obtained part c above, compute the point elasticity of labor supply (i.e., of the optimal choice n*) with respect to the real wage w. The representative consumer's utility function is -(11/8), 1+1/5 n 1+1/ u(c, n) = lnc- in which the parameter (the Greek lowercase letter "xi") is a fixed number. Suppose the labor income tax rate is t=0. a. Based on the utility function above, construct the Lagrange function. b. Based on the Lagrange function from part a, obtain the three first-order conditions. c. Using the first-order conditions from part b, construct the consumption-labor (aka consumption-leisure) optimality condition. Provide algebraic steps as needed for clarity. d. Based on the consumption-labor (aka consumption-leisure) optimality condition obtained part c above, compute the point elasticity of labor supply (i.e., of the optimal choice n*) with respect to the real wage w.
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1a The consumers problem is to 1 n max U Inc s t c wn The required Lagrange function is 1 1 7 Equati... View the full answer
Related Book For
Financial Management for Decision Makers
ISBN: 978-0138011604
2nd Canadian edition
Authors: Peter Atrill, Paul Hurley
Posted Date:
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