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2. (12 points) A rm has a production function Y = 150N0'6. The real wage to = 30. (a) (4 points) How much labor will this rm hire and how much can it produce? (b) (4 points) Suppose that the government suhsidizes employment. That is, the government pays the rm 1 units of consumption goods for each unit of labor that the rm hires. (Direct subsidy to rms is rare. There are many federal and state job creation related grants and tax breaks that indirectly lower the cost of hiring.) Determine the effect of the subsidy on the rms hiring decision. (c) (4 points) The production precess of this rm causes pollution. The government passes a law that requires the rm to stop polluting. This rm discovers that it can prevent pollution by hiring 0.2 additional workers for each worker in the production process to clean up. Let N denote the amount of labor hired on the production line. The total employment at the rm after complying with the environment law is (1 +0.2)N . The total cost of hiring a production worker should include both his wage and the portion of the wage of the worker who cleans after him, i.e., (1+ 0.2)w. Determine the effect. of the pollution regulation on the rms hiring decision. 3. (3 points) Nemo has a preference where consumption and leisure time are perfect substitutes, represented by u(c, l) = 1.5a + 0.91. Suppose that w = 0.7 and 1r = 0.85. The total time endowment is normalized to be 1. Determine his optimal choice of consumption and leisure