Consider an otherwise standard Arrow Debreu Equilibrium with some modifications. Suppose that households now are not allowed to own capital directly. Instead, firms own all of the initial capital stock ko and also make all future investments in capital. Households own all shares of the firms, and returns to the firms now include returns to capital. Make necessary changes to the firm's and the household's problems to fit the new arrangement, define the new equilibrium, and show that the equilibrium quantities and prices are same as before.

Consider an otherwise standard Arrow Debreu Equilibrium with some modifications. Suppose that households now are not allowed to own capital directly. Instead, firms own all of the initial capital stock ko and also make all future investments in capital. Households own all shares of the firms, and returns to the firms now include returns to capital. Make necessary changes to the firm's and the household's problems to fit the new arrangement, define the new equilibrium, and show that the equilibrium quantities and prices are same as before.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.5P

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