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1、Chapter Thirty-OneProduction生产Exchange Economies (revisited)uNo production, only endowments, so no description of how resources are converted to consumables.uGeneral equilibrium: all markets clear simultaneously.u1st and 2nd Fundamental Theorems of Welfare Economics.Now Add Production .uAdd input ma
2、rkets, output markets, describe firms technologies, the distributions of firms outputs and profits uThats not easy!ContentsuA one-person economy Optimal outcome Competitive equilibrium Two welfare theorems Non-convex technologiesuTwo-people economy Production possibility frontier Comparative advanta
3、ge Pareto efficient allocation Competitive equilibriumRobinson Crusoes EconomyuOne agent, RC.uEndowed with a fixed quantity of one resource - 24 hours.uUse time for labor (production) or leisure (consumption).uLabor time = L. Leisure time = 24 - L.uWhat will RC choose?Robinson Crusoes TechnologyuTec
4、hnology: Labor produces output (coconuts) according to a concave production function.Robinson Crusoes TechnologyProduction functionLabor (hours)Coconuts240Robinson Crusoes TechnologyLabor (hours)CoconutsProduction function240Feasible productionplansRobinson Crusoes PreferencesuRCs preferences:coconu
5、t is a goodleisure is a goodRobinson Crusoes PreferencesLeisure (hours)CoconutsMore preferred240Robinson Crusoes PreferencesLeisure (hours)CoconutsMore preferred240Robinson Crusoes ChoiceLabor (hours)CoconutsFeasible productionplansProduction function240Robinson Crusoes ChoiceLabor (hours)CoconutsFe
6、asible productionplansProduction function240Leisure (hours)240Robinson Crusoes ChoiceLabor (hours)CoconutsFeasible productionplansProduction function240Leisure (hours)240Robinson Crusoes ChoiceLabor (hours)CoconutsFeasible productionplansProduction function240Leisure (hours)240Robinson Crusoes Choic
7、eLabor (hours)CoconutsProduction function240Leisure (hours)240C*L*Robinson Crusoes ChoiceLabor (hours)CoconutsProduction function240Leisure (hours)240C*L*LaborRobinson Crusoes ChoiceLabor (hours)CoconutsProduction function240Leisure (hours)240C*L*LaborLeisureRobinson Crusoes ChoiceLabor (hours)Cocon
8、utsProduction function240Leisure (hours)240C*L*LaborLeisureOutputRobinson Crusoes ChoiceLabor (hours)CoconutsProduction function240Leisure (hours)240C*L*LaborLeisureMRS = MPLOutputCompetitive EquilibriumuA firm Produce coconuts Demand laboruA consumer Demand coconuts Supply laboruEquilibrium Market
9、clears for coconuts Market clears for laborCompetitive EquilibriumuNow suppose RC is both a utility-maximizing consumer and a profit-maximizing firm.uUse coconuts as the numeraire good; i.e. price of a coconut = $1.uRCs wage rate is w.uCoconut output level is C.uLabor supply is L.Robinson Crusoe as
10、a FirmuRCs firms profit is = C - wL.u = C - wL C = + wL, the equation of an isoprofit line.uSlope = + w .uIntercept = .Isoprofit LinesLabor (hours)Coconuts24Higher profit; Slopes = + w0Profit-MaximizationLabor (hours)CoconutsFeasible productionplansProduction function240Profit-MaximizationLabor (hou
11、rs)CoconutsProduction function240Profit-MaximizationLabor (hours)CoconutsProduction function240Profit-MaximizationLabor (hours)CoconutsProduction function24C*L*Isoprofit slope = production function slope0Profit-MaximizationLabor (hours)CoconutsProduction function24C*L*Isoprofit slope = production fu
12、nction slope i.e. w = MPL = 1 MPL = MRPL.0Profit-MaximizationLabor (hours)CoconutsProduction function24C*L*Isoprofit slope = production function slope i.e. w = MPL = 1 MPL = MRPL.RC gets 0Profit-MaximizationLabor (hours)CoconutsProduction function24C*L*Isoprofit slope = production function slope i.e
13、. w = MPL = 1 MPL = MRPL.Given w, RCs firms quantitydemanded of labor is L*LabordemandRC gets 0Profit-MaximizationLabor (hours)CoconutsProduction function24C*L*Isoprofit slope = production function slope i.e. w = MPL.Given w, RCs firms quantitydemanded of labor is L* andoutput quantity supplied is C
14、*.LabordemandOutputsupplyRC gets 0Utility-MaximizationuNow consider RC as a consumer endowed with $* who can work for $w per hour.uWhat is RCs most preferred consumption bundle?uBudget constraint isUtility-MaximizationLabor (hours)Coconuts240Budget constraint; slope = wUtility-MaximizationLabor (hou
15、rs)CoconutsMore preferred240Utility-MaximizationLabor (hours)Coconuts240Budget constraint; slope = wUtility-MaximizationLabor (hours)CoconutsBudget constraint; slope = w240Utility-MaximizationLabor (hours)Coconuts240C*L*MRS = wBudget constraint; slope = wUtility-MaximizationLabor (hours)Coconuts240C
16、*L*LaborsupplyBudget constraint; slope = wMRS = wGiven w, RCs quantitysupplied of labor is L*Utility-MaximizationLabor (hours)Coconuts240C*L*Given w, RCs quantitysupplied of labor is L* andoutput quantity demanded is C*.LaborsupplyOutputdemandBudget constraint; slope = wMRS = wUtility-Maximization & Profit-MaximizationuProfit-maximization: w = MPL quantity of output supplied = C* quantity of labor demanded = L*uUtility-maximization: w = MRS quantity of output demanded = C* quantity of labor supp
