Reference no: EM131277358

Consider the following (short-run) production function, Y, as a function of labor, H: . Compute the marginal product of labor. How much labor would be demanded in a perfectly competitive market where the consumption price of the final good were 2 and the market wage were 20? Use the concepts of (i) substitutes in production versus pure complements in production and of (ii) gross substitutes versus gross complements to assess the likely impact of the rapid decline in the price of computers and related office equipment on the labor demand for secretaries. An individual can consume leisure, , or goods,. He can consume a maximum leisure of 160 hours a week. His utility function is . He has an exogenous income of 400 euros. Assume that the price of goods is one and the hourly wage is 5 euros. Write down the individual's budget constraint. Represent it graphically, indicate what is its slope and its vertical intercept and explain their economic meaning. Derive the individual's optimal choice of consumption, leisure and labor supply. Represent the optimal choice on a graph. How would his optimal choice change if the wage was 5 euros per hour but the exogenous non-labor income increased from 400 to 800 euros? Decompose the total effect on leisure between the income effect and substitution effect. Suppose that the wage increased from 5 to 10 euros per hour (non-labor income remains at 400). Compute the new optimal choice and represent it graphically. Decompose the total effect on leisure between the income effect and substitution effect. Discuss the differences with respect to the previous part. Derive the labor supply curve for this individual. When does the income effect dominate the substitution effect?