Q1. Set up the representative agent's utility maximization problem and write down the first order conditions for this maximization problem and determine ls and cD as functions of w and p.
The question is a descriptive question in
u(c,l) = ca (24-l)1-a for 0<a<1
Production of the consumption good c is given by the production function c = Al; where A > 0 is the productivity of labour. Both the commodity market and labour market are
A competitive equilibrium is given by the allocation of consumption and
labour, (cCE,lCE) and the relative price ratio, w/p, such that for given w and p, a representative agent decides her labour supply, lS, and consumption demand, cD; to maximize her utility;
A fi rm decides its labour demand, lD; and supply of consumption good, cD; to maximize its pro fit; and, finally, both the commodity market and labour market clear, that is, fi nally, both the commodity market and labour market clear, that is, lD= lS and cD=cS
Q1. Set up the representative agent's utility maximization problem and write down the first order conditions for this maximization problem and determine ls and cD as functions of w and p.
Step by step
Solved in 2 steps
