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Unformatted text preview: HW 8 - suggested solutions March 2, 2010 Question 1 - Robinson Crusoe economy Let us normalize p c = 1, p l = w , then firm problem is given by max L AL- wL and the f.o.c. states just that profits are zero, w = A . The consumer problem is given by max c , l c + l subject to c + wl w . For < 1 we have an interior solution and hence the f.o.c. is c = w 1 1- l , which after substituting into the budget constraint yields c = A 1 1- 1 + A 1- l = 1 1 + A 1- . Utility is given by u ( c , l ) = c + l = 1 1 + A 1- 1- , 1 which is increasing in A for all < 1. For leisure demand we have that the income effect dominates the substitution effect for negative , dl dA < 0, < < 1, dl dA > 0, < 0. Question 2 - public radio Let us normalize p c = 1, p R = p , then firm problem is given by max x p 1 2 x- x and the f.o.c. states just that profits are zero, p = 2....
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This note was uploaded on 04/01/2010 for the course ECON 180052110 taught by Professor Mcdevitt during the Winter '09 term at UCLA.
- Winter '09