Question 1 . In competitive markets, there are many small firms with each firm unable to influence the market price. Suppose company XYZ operates in…
September 3, 2020
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September 3, 2020

1, Consider an economy where, consumer’s utility function is given as U(C,L)=C-(1/2)L2 .where C is consumption and L is labor. The production technology is Y=(1.6)L-(1/2)L2.The turnover cost per labor is (0.36)/(w/p)(a) What happens to t as labor increases? Give a clear intuition(b) Write down the firm’s maximization problem and solve it. Find real wage, labor.(c) Write down consumer maximization problem and solve it. Derive labor supplycurve(d) Find real wage, employment, output and unemployment in this economy.(e) Illustrate the solution graphically using Labor Supply / Labor Demand andProduction Function diagrams.2,Is money neutral in the “Flexible-Wages Monetary Model” ? Why or why not?

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