(a) Find the optimal allocation (C", L"), in which Robinson Crusoe acts as a social planner. (b) Now consider a de-centralized economy. That is, think of this economy that consists of many individuals with the identical taste and technology. First, consider a firm's decision problem. The firm produces coconuts (C), employing workers (L). The firm hires L in a competitive market, given the wage rate (w). Without loss of generality, assume the price of coconuts to be P₂ = 1. Given the market wage rate (w), how much labour would a firm hire in order to maximize its profits? Label your answer as Lp, and note that your answer must be a function of w.

(a) Find the optimal allocation (C", L"), in which Robinson Crusoe acts as a social planner. (b) Now consider a de-centralized economy. That is, think of this economy that consists of many individuals with the identical taste and technology. First, consider a firm's decision problem. The firm produces coconuts (C), employing workers (L). The firm hires L in a competitive market, given the wage rate (w). Without loss of generality, assume the price of coconuts to be P₂ = 1. Given the market wage rate (w), how much labour would a firm hire in order to maximize its profits? Label your answer as Lp, and note that your answer must be a function of w.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.4P

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