Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hi. I need homework help pls. As per chegg guidelines, the first 4 subparts may be answered, therefore, please help me with A/b/c/d , or

Hi. I need homework help pls. As per chegg guidelines, the first 4 subparts may be answered, therefore, please help me with A/b/c/d , or as many as you possibly can. at least the 3 first subparts pls

image text in transcribed

Consider an economy populated by a representative consumer, that has preferences over leisure (l) and consumption (c). The consumer's utility function in this one-period model is: 1 In(c) + u(C, 1) = Bin(e) zin() The consumer has 1 unit of time (h = 1) at his disposal to spend between leisure and work. With T being a fixed lump-sum tax, a being profits from dividends, and w being wage, the consumer's budget constraint can be written as: c+wl = w+7-T The representative firm's production function is Y = 2K1/2 1/2 Assume that K = 1, z = 10, and that the goverment buys two units of consumption good, meaning G= 2. (a) Define and Calculate the marginal rate of substitution of leisure for consumption (MRS). Show why it is not optimal for the consumer to choose the allocation c= 5 and 1 = 0.64 if the wage is w = 10. (b) Show why this firm does not maximize profits 7 if it chooses N = 0.64 when w = 10. What should this firm do? Explain. (c) The Production Possibility Frontier (PPF) is useful to determine the social planner's solution of an economy. Define PPF. Find the PPF for this model. (d) The social planner's solution must also satisfy the condition MRSic = MPN = MRTc. Show that the social planner's solution is c=3 and 1 = 0.75 Consider an economy populated by a representative consumer, that has preferences over leisure (l) and consumption (c). The consumer's utility function in this one-period model is: 1 In(c) + u(C, 1) = Bin(e) zin() The consumer has 1 unit of time (h = 1) at his disposal to spend between leisure and work. With T being a fixed lump-sum tax, a being profits from dividends, and w being wage, the consumer's budget constraint can be written as: c+wl = w+7-T The representative firm's production function is Y = 2K1/2 1/2 Assume that K = 1, z = 10, and that the goverment buys two units of consumption good, meaning G= 2. (a) Define and Calculate the marginal rate of substitution of leisure for consumption (MRS). Show why it is not optimal for the consumer to choose the allocation c= 5 and 1 = 0.64 if the wage is w = 10. (b) Show why this firm does not maximize profits 7 if it chooses N = 0.64 when w = 10. What should this firm do? Explain. (c) The Production Possibility Frontier (PPF) is useful to determine the social planner's solution of an economy. Define PPF. Find the PPF for this model. (d) The social planner's solution must also satisfy the condition MRSic = MPN = MRTc. Show that the social planner's solution is c=3 and 1 = 0.75

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Audit Proof Tax Shelters

Authors: Donald Jay Korn

1st Edition

0130509310, 978-0130509314

More Books

Students also viewed these Accounting questions

Question

Solve for x: 2(3x 1)2(x + 5) = 12

Answered: 1 week ago