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Review Questions for Final [Key 12]

# Review Questions for Final [Key 12] - 2 = 3 Hence qV 1 = 3...

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Review Problem #12 Econ 102 Fall 2008 Prepared by Anton Cheremukhin max C s.t. C = Y s.t. Y = X s.t. L = X + V s.t. L = H 1 = 3 V 2 = 3 s.t. H = 1 Substitute everything in: C = Y = X = L V = V 2 = 3 V ! max V FOC: 2 3 V 1 3 1 = 0 Hence, V 1 3 = 2 3 = ) L = V 2 3 = V 1 3 ± 2 = ² 2 3 ³ 2 = 4 9 Unemployment is U = H L = 1 4 9 = 5 9 Decentralized solution: max pY wL s.t. Y = X s.t. X + V = L s.t. L = qV Substitute everything in: pY wL = pX wL = p ( L V ) wL = p L L q ± wL = pL 1 1 q ± wL ! max L FOC: 1 1 q ± = w p = ) 1 q = 1 w p In equilibrium: L = qV = H 1 = 3 V 2 = 3 = V
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Unformatted text preview: 2 = 3 Hence, qV 1 = 3 = 1 = ) 1 q = V 1 3 = ) L = V 2 3 = & V 1 3 ± 2 = & 1 q ± 2 Thus, 1 q = p L Substituting into the FOC: w p = 1 & 1 q = 1 & p L Hence, L = & 1 & w p ± 2 ; V = & 1 & w p ± 3 ; Y = X = L & V = & 1 & w p ± 2 & & 1 & w p ± 3 1...
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