Suppose That All Workers Place a Value on Their Leisure

question 67

Multiple Choice

Suppose that all workers place a value on their leisure of 40 goods per day.The production function relating output per day Y to the number of people working per day N is
Y = 200N - N2
And the marginal product of labor is
MPN = 200 - 2N.
A 20% tax is levied on wages.In terms of lost output,what is the cost of the distortion introduced by this tax?

• A)25
• B)75
• C)150
• D)225

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Definitions:

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The legal ability of a person or entity to enter into a contract.

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To formally approve or confirm an agreement, treaty, or action, making it officially valid.

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Disaffirm

The legal act of renouncing or rejecting a contract or agreement, particularly one entered into by a minor.