Assume that there is a representative firm in the economy. This firm takes the wage rate was given and wants to maximize profits defined by π = 4zNd-wNd. Nd is the labor demand of the firm and z is a given productivity parameter. What is the optimal labor demand of the firm? ○ Nd* = (3) Nd* = (32)4 3z 4w ○ Nd* = (%) 4 ○ Nd* = ( 32 ) 4 Consider the decisions of a representative consumer whose preferences are given by u(C, 1) = C+ Bl₁, in which C is the quantity of consumption and 1 is the quantity of leisure. The parameter Bis positive, and 0 < ß < 1 holds. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with N³ as the time spent working (or the labor supply). Further, consumers take wages as given (outside of their control) and obtain wage income equal to wNs. The budget constraint is C w(1-1)+π-T, with TT as the real dividend income received from the representative firm and T as the real lump- sum taxes paid to the government. Assume for simplicity that T = 0. =
Assume that there is a representative firm in the economy. This firm takes the wage rate was given and wants to maximize profits defined by π = 4zNd-wNd. Nd is the labor demand of the firm and z is a given productivity parameter. What is the optimal labor demand of the firm? ○ Nd* = (3) Nd* = (32)4 3z 4w ○ Nd* = (%) 4 ○ Nd* = ( 32 ) 4 Consider the decisions of a representative consumer whose preferences are given by u(C, 1) = C+ Bl₁, in which C is the quantity of consumption and 1 is the quantity of leisure. The parameter Bis positive, and 0 < ß < 1 holds. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with N³ as the time spent working (or the labor supply). Further, consumers take wages as given (outside of their control) and obtain wage income equal to wNs. The budget constraint is C w(1-1)+π-T, with TT as the real dividend income received from the representative firm and T as the real lump- sum taxes paid to the government. Assume for simplicity that T = 0. =
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.14P
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Transcribed Image Text:Assume that there is a representative firm in the economy. This firm takes the wage rate was given
and wants to maximize profits defined by π =
4zNd-wNd. Nd is the labor demand of the
firm and z is a given productivity parameter. What is the optimal labor demand of the firm?
○ Nd* = (3)
Nd* = (32)4
3z
4w
○ Nd* = (%) 4
○ Nd* = ( 32 ) 4
Transcribed Image Text:Consider the decisions of a representative consumer whose preferences are given by u(C, 1) =
C+ Bl₁, in which C is the quantity of consumption and 1 is the quantity of leisure. The parameter
Bis positive, and 0 < ß < 1 holds.
The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with N³ as the
time spent working (or the labor supply). Further, consumers take wages as given (outside of their
control) and obtain wage income equal to wNs. The budget constraint is C w(1-1)+π-T,
with TT as the real dividend income received from the representative firm and T as the real lump-
sum taxes paid to the government. Assume for simplicity that T = 0.
=
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