Chapter Thirty-One Production
Chapter Thirty-One Production
Exchange Economies (revisited) No production,only endowments,so no description of how resources are converted to consumables. General equilibrium:all markets clear simultaneously. 1st and 2nd Fundamental Theorems of Welfare Economics
Exchange Economies (revisited) No production, only endowments, so no description of how resources are converted to consumables. General equilibrium: all markets clear simultaneously. 1st and 2nd Fundamental Theorems of Welfare Economics
We will Consider 1.One consumer,one product,one factor; 2.Two consumers,two products,two factors;
We will Consider 1. One consumer, one product, one factor; 2. Two consumers, two products, two factors;
Robinson Crusoe's Economy One agent,RC. Endowed with a fixed quantity of one resource -24 hours. Use time for labor (production)or leisure (consumption). Labor time L.Leisure time 24 L. What will RC choose?
Robinson Crusoe’s Economy One agent, RC. Endowed with a fixed quantity of one resource -- 24 hours. Use time for labor (production) or leisure (consumption). Labor time = L. Leisure time = 24 - L. What will RC choose?
Robinson Crusoe's Technology Coconuts Production function Feasible production plans 0 24 Labor (hours)
Robinson Crusoe’s Technology Labor (hours) Coconuts Production function 0 24 Feasible production plans
Robinson Crusoe's Preferences RC's preferences: -coconut is a good -leisure is a good
Robinson Crusoe’s Preferences RC’s preferences: – coconut is a good – leisure is a good
Robinson Crusoe's Preferences Coconuts More preferred 24 Leisure (hours)
Robinson Crusoe’s Preferences Leisure (hours) Coconuts More preferred 0 24
Robinson Crusoe's Preferences Coconuts More preferred 24 0 Labor (hours)
Robinson Crusoe’s Preferences Labor (hours) Coconuts More preferred 24 0
Robinson Crusoe's Choice Coconuts MRS=MPL Production function Outp Labor 0 Labor (hours) 24 0 Leisure (hours)
Robinson Crusoe’s Choice Labor (hours) Coconuts Production function 0 24 24 0 Leisure (hours) C* L* Labor Leisure MRS = MPL Output
Robinson Crusoe as a Firm Now suppose RC is both a utility- maximizing consumer and a profit- maximizing firm. Use coconuts as the numeraire good;i.e.price of a coconut $1. RC's wage rate is w. Coconut output level is C
Robinson Crusoe as a Firm Now suppose RC is both a utilitymaximizing consumer and a profitmaximizing firm. Use coconuts as the numeraire good; i.e. price of a coconut = $1. RC’s wage rate is w. Coconut output level is C