conspicuous consumption SOS

nwicole

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Oct 6, 2014
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18
1. Consider the following version of the conspicuous consumption .
There are two individuals with utility functions:
U1= C^0.5 l^0.5(c1/c2)^0.25
U2=C^0.5 l^0.25 (C1/C2)^0,25

each player has initial endowment of 10 units of labor and 0 units of cars. There is also a single firm with production function fc(l) = l.
a) As in class, we could argue that market equilibrium requires Pl = Pc. Thus set Pl = Pc = 1 and and the market equilibrium allocation in this economy. (Hint: Remember that each player takes prices and the choices of the other player as given. In the solution each player will consume same basket of cars and labor/leisure. The answers will not be round numbers.) What is the utility of each agent?

b) Find the allocation that maximizes the sum of the utilities
(Hint: Each player will consume same basket of cars and labor/leisure.)
What is the utility of each agent?

I not able to find the solution since my answer are round number

thank you so much
 
1. Consider the following version of the conspicuous consumption .
There are two individuals with utility functions:
U1= C^0.5 l^0.5(c1/c2)^0.25
U2=C^0.5 l^0.25 (C1/C2)^0,25

each player has initial endowment of 10 units of labor and 0 units of cars. There is also a single firm with production function fc(l) = l.
a) As in class, we could argue that market equilibrium requires Pl = Pc. Thus set Pl = Pc = 1 and and the market equilibrium allocation in this economy. (Hint: Remember that each player takes prices and the choices of the other player as given. In the solution each player will consume same basket of cars and labor/leisure. The answers will not be round numbers.) What is the utility of each agent?

b) Find the allocation that maximizes the sum of the utilities
(Hint: Each player will consume same basket of cars and labor/leisure.)
What is the utility of each agent?

I not able to find the solution since my answer are round number
Please reply showing what you did and the answer you got.

Thank you! ;)
 
Please reply showing what you did and the answer you got.

Thank you! ;)

sorry about that

for q1 , I got stick is if Pl = Pc = 1, so i can used MRS1= ratio = MRS2?
then all got cancel out , so I think im not on a right track, do u think any hints for me?
then i m not able to get what is that mean the labor/ leisure part?


for q2 I dont get what is it mean for the maximum the sum mean,
so is that mean i need to choose the PE allocation?
 
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