This Question Has You Determine the Effect of a Tax

question 40

Essay

This question has you determine the effect of a tax on labor on the long-run cost function.Consider a firm with the production function f(L,K)= LK.The wage rate and rental rate on capital are w and r,respectively.
a.Using the Lagrangian,derive the long-run cost function for this firm.
b.Suppose the government taxes labor at by an amount t per unit of labor.Rewrite the long-run cost function including the tax.Hint: the effective wage rate is now w + t.
c.Compute the marginal effect of the tax on the long-run cost function.To do so,compute the partial derivative of the cost function with respect to t.Does an increase in the tax increase the cost linearly?

---

Definitions:

Astigmatism

A common vision condition caused by an irregular curvature of the cornea or lens, leading to blurred or distorted vision at any distance.

Curvature

The state of being curved or bent, often describing the shape or contour of something, such as a line, path, or anatomical structure.

Colorblind

An inability or decreased ability to see color, or perceive color differences, under normal lighting conditions.

Accommodation

The ability of the eye to change its focus from distant to near objects (and vice versa) by changing the curvature of the lens.