It implie T, is indeterminate 0. Note that the only possible equilibrium is when Pg =3. Zero-profit argument is not accurate here Firm 2s problem: max Pib-2= max(3P6-1)c It implies E2 is indeterminate, P9 0 Consumer 1s problem maxv1(g,b)=904806 st.P0g+Pb=元1+ Its solution is 0.4元 a0.61=18 B Consumer 2's problem maxu2(,b)=905805 s.t. Pog+ Pbb=a2+T2 The solution 0.572 0.5 b2 P6 Market clearing conditions 1+x2=1+22,91+92 b1+b2=3x Because of Walras Law, we only need two of these three conditions to determine the equilibrium. They imply that i=9 and a%=ll. Therefore, the equilibrium is x1=9,x=11,9=8,$=10,=18,b=15,P PbIt implies x1 is indeterminate, Pg = 1 2 , π1 = 0. Note that the only possible equilibrium is when Pg = 1 2 . Zero-profit argument is not accurate here. Firm 2’s problem: π2 ≡ maxx Pbb − x = maxx (3Pb − 1)x. It implies x2 is indeterminate, Pg = 1 3 , π2 = 0. Consumer 1’s problem: max g,b u1(g, b) = g0.4b0.6 s.t. Pgg + Pbb = ¯x1 + π1 Its solution is g1 = 0.4¯x1 Pg = 8, b1 = 0.6¯x1 Pb = 18. Consumer 2’s problem: max g,b u2(g, b) = g0.5b0.5 s.t. Pgg + Pbb = ¯x2 + π2 The solution is g2 = 0.5¯x2 Pg = 10, b2 = 0.5¯x2 Pb = 15. Market clearing conditions: x1 + x2 = ¯x1 + ¯x2, g1 + g2 = 2x1, b1 + b2 = 3x2. Because of Walras Law, we only need two of these three conditions to determine the equilibrium. They imply that x∗ 1 = 9 and x∗ 2 = 11. Therefore, the equilibrium is: x∗ 1 = 9, x∗ 2 = 11, g∗ 1 = 8, g∗ 2 = 10, b∗ 1 = 18, b∗ 2 = 15, P∗ g = 1 2 , P∗ b = 1 3 . End 11