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Question 2 Devlin-Mcgregor hires labor to produce Dude Wipes (https : / / youtu.be/WN1oiyKdG'dc).1 If L is the amount of labor used in the production
Question 2 Devlin-Mcgregor hires labor to produce Dude Wipes (https : / / youtu.be/WN1oiyKdG'dc).1 If L is the amount of labor used in the production of Dude Wipes, the quantity of Dude Wipes produced will be f (L) = x/E. There are 2 agents Alice (A) and Bob (B) in the economy, who have one unit of free time and consume Dude Wipes. They each own half shares in DevlinMcGregor's prots. They also have identical preferences represented by the utility function 15(3), 6) = $2(l E), where a: is the number of units of Dude Wipes consumed and E is the number of units of labor supplied. Let labor be the numeraire so that the wage per unit of labor, denoted w, is 1. Denote the unit price of Dude Wipes by p. 1. Determine the prot maximizing level of labor that Devlin-McGregor should acquire as well as the prot maximizing quantity of Dude Wipes as a function of p and the wage. . Determine the utility maximizing quantity of Dude Wipes purchased by Alice as well as the amount of labor supplied by her as a function of p and the wage. . What is the Walrasian equilibrium price and allocation? . Alice and Bob together invent an improved technology for producing Dude wipes. This is reected in the production function of the new technology denoted g(L) 2 2E. Devlin- McGregor is considering purchasing this technology at a price of $3.20, which Alice and Bob will divide in half. Assume the prices stay at the equilibrium level identied in part (3), is it protable for DevlinMcGregor to purchase and deploy the new technology? . A consultant argues that this is not the right way to decide whether to purchase the technol- ogy. The new technology will change the equilibrium price and allocations, and consequently DevlinMcGregor should compare the prots at the new price level to the original prot. Devlin-McGregor's CEO, however, says it would lead to the same conclusion. Determine which of the consultant or CEO is correct
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