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Hello, could you please explain me how to solve this exercise? Thank you in advance! Robby's production function for transforming labor I into bread x
Hello, could you please explain me how to solve this exercise?
Thank you in advance!
Robby's production function for transforming labor I into bread x is given by x = 12VI. Robinson Crusoe's utility function for labor and bread is u(l, x) = x - 12/9. Robinson Crusoe owns Robby's, and both Robinson Crusoe the consumer and Robby's the firm are price takers. a) Show that at the Pareto efficient allocation Robinson works 9 hours per day. Think about the graphical and numerical solutions. Sketch the graphical solution. b) Find the market equilibrium allocation, and explain why it is Pareto efficient c) Find the equilibrium market prices and the equilibrium profit level for Robby's. Hint: Set the price of bread equal to 1, so bread is the numeraire goodStep by Step Solution
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