2.5 Suppose that the production of goods X and Y is described using the production functions: X = BL, K, Y = (2,/1, +2/K, x. Determine the competitive equilibrium and the social equilibrium. Also calculate the rate of the Pigouvian subsidy to correct for the misallocation of resources under competitive equilibrium.

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.2P
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Q.5 Suppose that the production of goods X and Y is described using the production functions:
X = BL, K,
Y = (2/L, +2/K, )x.
Determine the competitive equilibrium and the social equilibrium. Also calculate the rate of the Pigouvian
subsidy to correct for the misallocation of resources under competitive equilibrium.
Transcribed Image Text:Q.5 Suppose that the production of goods X and Y is described using the production functions: X = BL, K, Y = (2/L, +2/K, )x. Determine the competitive equilibrium and the social equilibrium. Also calculate the rate of the Pigouvian subsidy to correct for the misallocation of resources under competitive equilibrium.
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