Calculate equilibrium levels of the real wage and employment

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Reference no: EM13222226

The production function is Y=9K^.5N^.5.
MPN =4.5K^.5N^-.5
Capital Stock is K=25
Labor Supply curve si NS = 100[(1-t)w]^2 where w is real wage rate, t is tax rate on labor income

Question:
1. Assume tax rate on labor income t=.6. Find the equation of the labor demand curve. Calculate equilibrium levels of the real wage and employment, the level of full employment output, and the total after tax wage income of workers.

2. Suppose that minimum wage of w=2 is imposed. If t=0, what are the resulting values of employment and the real wage?

Reference no: EM13222226

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