Suppose that all workers place a value on their leisure of 75 goods per day.The production function relating output per day Y to the number of people working per day N is Y = 500N - 0.4N² and the marginal product of labour is MPN = 500 - 0.8 N.A 25% tax is levied on wages.Output per day would be

Question

Quizplus · Accepted Answer

To find the optimal number of workers, we need to set the marginal product of labor equal to the net wage rate, which is the gross wage rate minus the tax rate (0.75 in this case):

500 - 0.8N = 0.75(500 - 0.4N)
Solving for N, we get N = 250

So the optimal number of workers is 250.

Plugging this into the production function, we get:

Y = 500(250) - 0.4(250^2) = 150,000

With the 25% tax, the net output per day is 0.75(150,000) = 112,500.

Suppose That All Workers Place a Value on Their Leisure