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.
a. How much is output per day?
b. In terms of lost output, what is the cost of the distortion introduced by this tax?

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The Answer of 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. a. How much is output per day? b. In terms of lost output, what is the cost of the distortion introduced by this tax?

Suppose That All Workers Place a Value on Their Leisure