Exercise 13.15. Consider the formulation of competition policy in subsection 13.1.6. (1) Characterize the equilibrium fully. (2) Write down the welfare of the representative household at time t = 0 in this equilibrium. (3) Maximize this welfare function by choosing a value of γ. (4) Why is the optimal value of γ not equal to some γ∗ ≥ 1/ (1 − β)? Provide an interpretation in terms of the tradeoff between level and growth effects. (5) What is the relationship between the optimal value of γ and ρ. Interpret.