A neoclassical theorist would use the formula Y = (w r * L s) + (I r * K s) to explain why a given person, John, is poor.
a) According to the Neoclassical Theory, how would John decide how many hours of labor to supply? Draw an appropriate diagram to illustrate your answer and explain your answer in words.
b) According to the Neoclassical Theory, how would John decide how much capital to supply to the market? Draw an appropriate diagram to illustrate your answer and explain your answer in words.
c) i) Explain why, according to the Neoclassical Theory, Marginal Product of Labor ultimately determines John’s wage.
ii) Explain why, according to the Neoclassical Theory, Marginal Product of Capital ultimately determines the return (the interest rate) that John receives on his investments.
d) Based on your answers to a), b) and c), what are the three ultimate factors that determine John’s income?
e) Would the Neoclassical Theory be able to arrive at its explanation for why some people are rich and some people are poor if the assumption of rationality were modified? Explain.
Take a shot, what do you think the answers are. Be sure to do a little research (i.e., read your text) before you answer.
There is no text for these questions which is why i have no clue where to begin.