Problem 1 Consider the economy with capital studied in class. Assume the endowment vector (y,0). Suppose the production function is f(k) = √k and u(c1, c2) = In c₁ + ln c2. a. Suppose there is no money. Find the equilibrium consumption allocation (ci,c). b. Now suppose there is money in this economy. Find the equilibrium consumption allocation (1,82). c. Let u(y) = u(ci, c) and (y) = u(c1, c2). Calculate the values of u(y) and (y) for the values y=1,5, 10. What is larger, u(y) or (y)? d. Plot u'(y) and u(y) for values of y = [0,10] on the same graph using different colours or thickness. You can use Maple, Excel, or any other software.

Problem 1 Consider the economy with capital studied in class. Assume the endowment vector (y,0). Suppose the production function is f(k) = √k and u(c1, c2) = In c₁ + ln c2. a. Suppose there is no money. Find the equilibrium consumption allocation (ci,c). b. Now suppose there is money in this economy. Find the equilibrium consumption allocation (1,82). c. Let u(y) = u(ci, c) and (y) = u(c1, c2). Calculate the values of u(y) and (y) for the values y=1,5, 10. What is larger, u(y) or (y)? d. Plot u'(y) and u(y) for values of y = [0,10] on the same graph using different colours or thickness. You can use Maple, Excel, or any other software.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.1P

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