Ch30 - Chapter Thirty Production Exchange...

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Chapter Thirty Production
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Exchange Economies (revisited) No production, only endowments, so no description of how resources are converted to consumables. General equilibrium: all markets clear simultaneously. 1st and 2nd Fundamental Theorems of Welfare Economics.
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Now Add Production ... Add input markets, output markets, describe firms’ technologies, the distributions of firms’ outputs and profits …
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Now Add Production ... Add input markets, output markets, describe firms’ technologies, the distributions of firms’ outputs and profits … That’s not easy!
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Robinson Crusoe’s Economy One agent, RC. Endowed with a fixed quantity of one resource -- 24 hours. Use time for labor (production) or leisure (consumption). Labor time = L . Leisure time = 24 - L . What will RC choose?
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Robinson Crusoe’s Technology Technology: Labor produces output (coconuts) according to a concave production function.
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Robinson Crusoe’s Technology Production function Labor (hours) Coconuts 24 0
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Robinson Crusoe’s Technology Labor (hours) Coconuts Production function 24 0 Feasible production plans
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Robinson Crusoe’s Preferences RC’s preferences: coconut is a good leisure is a good
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Robinson Crusoe’s Preferences Leisure (hours) Coconuts More preferred 24 0
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Robinson Crusoe’s Preferences Leisure (hours) Coconuts More preferred 24 0
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Robinson Crusoe’s Choice Labor (hours) Coconuts Feasible production plans Production function 24 0
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Robinson Crusoe’s Choice Labor (hours) Coconuts Feasible production plans Production function 24 0 Leisure (hours) 24 0
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Robinson Crusoe’s Choice Labor (hours) Coconuts Feasible production plans Production function 24 0 Leisure (hours) 24 0
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Robinson Crusoe’s Choice Labor (hours) Coconuts Feasible production plans Production function 24 0 Leisure (hours) 24 0
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Robinson Crusoe’s Choice Labor (hours) Coconuts Production function 24 0 Leisure (hours) 24 0 C* L*
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Robinson Crusoe’s Choice Labor (hours) Coconuts Production function 24 0 Leisure (hours) 24 0 C* L* Labor
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Robinson Crusoe’s Choice Labor (hours) Coconuts Production function 24 0 Leisure (hours) 24 0 C* L* Labor Leisure
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Robinson Crusoe’s Choice Labor (hours) Coconuts Production function 24 0 Leisure (hours) 24 0 C* L* Labor Leisure Output
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Robinson Crusoe’s Choice Labor (hours) Coconuts Production function 24 0 Leisure (hours) 24 0 C* L* Labor Leisure MRS = MP L Output
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