ProblemSet8-2009 - Econ 6202 Fall 2009 Dmitry Shapiro...

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Unformatted text preview: Econ 6202, Fall 2009 Dmitry Shapiro Problem Set 8 Due Tuesday November 24 1. Consider the following Robinson Crusoe economy. Robinson the consumer is endowed with zero units of coconuts, x , and 24 hours of time, h , so that e = (0 , 24) . His preferences are defined over R 2 + and represented by u ( x,h ) = xh . Robinson the producer uses the consumer’s labor services, l , to produce coconuts, y , according to the production function y = √ l . The producer sells the coconuts to the consumer. All profits from the production and sale of coconuts are distributed to the consumer. Find the Walrasian equilibrium prices and allocation of this economy. 2. In the Robinson Crusoe economy described in Exercise 1, suppose that Robinson does not think about a market, but simply chooses to enjoy h hours of leisure and spend 24- h hours collecting coconuts. What is his optimal choice of h ? How many coconuts does he get? Compare your answer to the answer to Exercise 1....
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