Suppose the government prohibited private companies with more than 20 employees from opening more than 30 hours per week. In contrast, before the pandemic, those companies may open up to 60 hours per week. The consumer chooses consumption c and leisure l to maximize utility u(C, L) subject to his budget constraint:

c = w(h l) + .

The firm has a Cobb-Douglas production function:

y = zkn¹ , 0 < < 1

and chooses n to maximize profits:

= y wn.

In equilibrium, labor demand n equals labor supply n = h l. Let C1, L1 be the consumption-leisure bundle chosen by the consumer in equilibrium before the work week is reduced.

a. Suppose that the government requires the consumer to consume at least l* units of leisure. Suppose that l* > l1, and describe the effect (up, down, no change, or ambiguous) of this policy on labor input n, real wage w, total output y, consumption c, and the utility of the consumer u(C, L).