Question
Consider a one-period economy with a single representative consumer, a single representative firm and the government. The representative consumer derives utility from consumption c and
Consider a one-period economy with a single representative consumer, a single representative firm and the government. The representative consumer derives utility from consumption c and leisure l:
u (c, l) = ln c + ln l
The firm produces output Y using capital K and labor N according to
Y = zKa N1-a
where z is the total factor productivity and a is the Cobb-Douglas parameter. The firm maximizes profits which are then transferred to the representative consumer.
The government balances the budget using lump-sum taxes T on the representative consumer to finance government spending G. The hourly wage in this economy is w and the consumer has h hours to divide between leisure and labor.
Assume that government spending G is 10, the representative consumer receives the profits that you calculated above, earns hourly wage w = 10, and has h = 16 hours to divide between leisure and labor. Calculate how many hours of work the representative consumer would like to supply in the market. (Provide a detailed answe)
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