There are N homogeneous households and N homogeneous firms. There is
only one good, and the good is produced by the firms with labor l according to
a production function f (l) = 212. The households enjoy utility U (2,1 – l) =
log x + log (1 – l) from x units of the good and 1- l units of leisure. Moreover,
each household owns one firm and receives its profit II, and there is no initial
endowment of x, that is, ū= 0.
1. Solve the households’ problem:
–
max {log x + log (1 – l)} st px + w (1 – l) = w+ II.
x>0,0
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