What are the equilibrium values of the real wage

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Reference no: EM131094557

Suppose all workers value their leisure at at 90 goods per day. The production function relating output per day to the number of people working per day (L) is:

Y = 250L − 0.5L²

(a) Assume there are no taxes. What are the equilibrium values of the real wage, employment and output? (Hint: real wage now equals MPL and the value of a day’s leisure.)

(b) A 25% tax is levied on wages. What are the equilibrium values of the real wage, employment and output? In terms of lost output, what is the distortion cost of this tax?

Reference no: EM131094557

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