View the step-by-step solution to:

Consider an economy described by the following: the production function is zK 1/2 N 1/2 the utility function is C 2/3 L 1/3 exogenous variables: K=1,...

Consider an economy described by the following:

 the production function is zK1/2N1/2

 the utility function is C2/3L1/3

 exogenous variables: K=1, G=0, h=1, Z=1.

  1.  Write down the problem that the representative consumer solves. What is the solution to this problem?
  2.  Write down the problem solved by the representative firm.
  3.  Find the production possibility frontier for this economy. Explain what it describes.
  4.  State the condition for an optimal allocation in this economy. Use it to find the optimal bundle(c,l). What is the equilibrium wage rate? Profits?
  5.  What happen to the answer in d) if the productivity increases from Z=1 to Z=2?
  6. Draw a graph comparing the equilibrium in d) to that in e). What do you conclude? Explain.
  7.  Is the consumer better-off if the government increases spending following the increase in Z? Explain. 


this is my past midterm exam. I'm trying to solve the question for practice.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question