Question 4. Suppose a consumer's preference is described by the following utility function U(C, 1) = 2C + 511/2, where C

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Question 4 Suppose A Consumer S Preference Is Described By The Following Utility Function U C 1 2c 511 2 Where C 1 (103.38 KiB) Viewed 37 times

Question 4. Suppose a consumer's preference is described by the following utility function U(C, 1) = 2C + 511/2, where C is the consumption goods l is the leisure. The total available time h is 1, and the market's real wage is w. The production function is given by Y = 2K1/2(ND)1/2, where z = 1 and K = 1. For simplicity, let us assume that there is no government, G = 0. The firm distributes a profit it to the consumer. a) Solve the consumer's problem and find the optimal values of C* and I". Derive the labor supply NS (function). b) b) Solve the firm's problem and derive ND. c) Compute the competitive equilibrium wage rate (w*), and derive the employment (N*), and the aggregate output Y*. d) Compute the equilibrium profit * and C*. Is the income-expenditure identity satisfied?