3. Suppose that the production function of an economy is given by Y = √N. The (representative) firm hires workers (N) at a wage rate w. Assume that the firm maximizes profits by choosing how much to produce and how many workers (hours) to hire. (Remember that the profit function is Y - WN.) The representative consumer has preferences given by the utility function U(-) = log (c) + log (1), with a marginal rate of substitution given by c/l, where c is consumption and / is the leisure time. The endowment of time of an individual is 24, which has to be allocated between labor and leisure. (Recall that N + 1 = 24.) a. Derive an expression for the labor demand function.
3. Suppose that the production function of an economy is given by Y = √N. The (representative) firm hires workers (N) at a wage rate w. Assume that the firm maximizes profits by choosing how much to produce and how many workers (hours) to hire. (Remember that the profit function is Y - WN.) The representative consumer has preferences given by the utility function U(-) = log (c) + log (1), with a marginal rate of substitution given by c/l, where c is consumption and / is the leisure time. The endowment of time of an individual is 24, which has to be allocated between labor and leisure. (Recall that N + 1 = 24.) a. Derive an expression for the labor demand function.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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