Process A Output : x = 3; y = 1 Input: L = 2; K = 1 Process B Output : x = 2; y = 1 Input: L = 1; K = 2 Utility Function of indivs. : U=xy. L = 500 units; K = 500 units 1. In equilibrium, what are the relative prices of x, y, L and K? 2. What is the effect on the distribution of income by factor shares of (a) wage tax t on L employed and (b) excise tax e on y?

Process A Output : x = 3; y = 1 Input: L = 2; K = 1 Process B Output : x = 2; y = 1 Input: L = 1; K = 2 Utility Function of indivs. : U=xy. L = 500 units; K = 500 units 1. In equilibrium, what are the relative prices of x, y, L and K? 2. What is the effect on the distribution of income by factor shares of (a) wage tax t on L employed and (b) excise tax e on y?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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