ECN 700 Study Guide - Final Guide: Utility
Document Summary
There are five questions and 64 points in total. Question 1 [14 points] consider an economy with n = 3 goods. The utility function of the representative consumer of the economy is. For the rest of the question, work with the function u(x1, x2, x3) obtained in (a). The economy has l units of labour that the representative consumer supplies. There are three sectors 1, 2, 3 in the economy, with sector i producing good i. Each sector has a competitive fringe of firms. Initially firms in all sectors use the existing technology (traditional mode) in which 1 unit of labour can produce 1 unit of good and the wage is 1. There is a new technology (modern mode) in which 1 unit of labour can produce t > 1 units of the good. The modern mode pays higher wage 1 + v.
