Problem_Set__6_-_General_equilibrium_and_imperfect_competition

Problem_Set__6_-_General_equilibrium_and_imperfect_competition

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Problem Set #6 - General Equilibrium Consider an economy in which there is one firm, one good produced, and one consumer. However, in contrast to the model we did in class, suppose that the consumer has dislikes working. The consumer’s utility from consumption is: X X U c ln ) ( α = . The disutility of work effort is given by: dL L D - = ) ( , where d is a fixed parameter. Therefore, the total utility of the consumer is given by: dL X U - = ln . The consumption good is produced according to the following: L A X = . 1. Consider first the “Robinson Crusoe” solution, or the solution that a benevolent social planner would pursue if the planner could choose optimal production and labor. To find this, substitute the production function directly into the utility function and find the utility maximizing level of labor. Then, plug this into the production function to find goods production, etc. You have “solved” the model when you have solutions for L and X in terms of technology and preferences. 2. If you just had the above solutions to the problem, how would you find the equilibrium “real wage?” 3. Now, consider a decentralized solution to the problem. In this scenario, the consumer
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This note was uploaded on 11/12/2009 for the course ECONOMICS 701 taught by Professor Baker during the Spring '09 term at CUNY Hunter.

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Problem_Set__6_-_General_equilibrium_and_imperfect_competition

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