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Hello, I need to understand what I got wrong in these problems Rawls and Egalitarianism There are two equally sized groups in an economy: workers,
Hello, I need to understand what I got wrong in these problems
Rawls and Egalitarianism There are two equally sized groups in an economy: workers, whose labor generates income, and retirees, who live from the revenues of taxes imposed on workers' income. Suppose this relationship may be modeled by one representative worker and one representative retiree as follows. Let: / 2 0: labor (e.g., daily hours of work) E [0,1] : tax on worker's gross income C =16/ +12 : opportunity cost of labor (e.g., costs of worker's effort) Worker's net income: W = (1-r) .481 - F Fixed costs of employment: A = [96, if/* > 0 0 , if * $0 Worker's utility: U = W-C = (1-1).481-96-161 -12 Retiree's net income: R = t . 48/ - A (96, if /*>0 and (0 Fixed administrative costs: A= 0 , if *=0 or #=0 The fixed costs of employment, F, are explicit monetary costs such as transportation, work clothing, etc., that the worker only incurs, if it is optimal to work, i.e., / >0. The administrative costs (A) represent the explicit monetary cost of administering the retirement program, which is paid lump sum by each worker only if both 1) it is optimal for the worker to work, and 2) the tax is positive. 1. Suppose the tax rate is zero, i.e., / =0. What is the value of the worker's utility maximizing /, 2. When / = 0, what is the value of the worker's net income, W* ? 3. What does the retiree's net income, R', equal, if t = 0? 4. Suppose now the tax rate is 100%, i.e., / =1. What is the value of the worker's utility maximizing /? 5. When f = 1, what is the value of the worker's net income? 6. What does the retiree's net income equal, if f = 1? 7. In general, find the equation of the worker's utility maximizing I, I'(f), expressed in terms of t. 8. Express the worker's net income in terms of t. Simplify. 9. Express the retiree's net income in terms of t. Simplify. 10. What tax rate, , would maximize the retiree's incomeStep by Step Solution
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