Summer 2014 Week 4 Tutorial Questions (Ch3) Solutions
Chapter 3:
Q1: Macroeconomics P101 Numerical Problems #6
Q2: Macroeconomics P.101 Numerical Problems #7
Q3: Macroeconomics P.101 Numerical Problems #8
Q4: Macroeconomics P.102 Analytical Problems #2
Q5: Macroeconomics P.102 Analytical Problems #4
Q1: Suppose that the production function is Y = 9K0.5N0.5. With this production
function, the marginal product of labour is MPN = 4.5 K0.5N-0.5. The capital stock
is K = 25. The labour supply curve is NS = 100[(1- t) ω]2, where ω is the real
wage rate, t is the tax rate on labour income, and hence (1 – t)ω is the after tax
real wage rate.
Answer: Since ω = 4.5 K0.5 N−0.5, N0.5 = 4.5 K0.5/ω, so N = 20.25 K/ω2. When K =
25, N =506.25/ω2.
a. Assume that the tax rate on labour income, t, equals zero. Find the equation of
the labour demand curve. Calculate the equilibrium levels of the real wage
