Robinson crusoe's choice oconu Its MRS= MP Production function Labor esure L 24 Labor(hours) 24 0 Leisure (hours)
Robinson Crusoe’s Choice Labor (hours) Coconuts Production function 0 24 24 0 Leisure (hours) C* L* Labor Leisure Output MRS = MPL
Competitive equilibrium A firm Produce coconuts Demand labor A consumer Demand coconuts Supply labor Equilibrium Market clears for coconuts Market clears for labor
Competitive Equilibrium A firm – Produce coconuts – Demand labor A consumer – Demand coconuts – Supply labor Equilibrium – Market clears for coconuts – Market clears for labor
Competitive equilibrium Now suppose Rc is both a utility maximizing consumer and a profit maximizing firm. Use coconuts as the numeraire good; i.e. price of a coconut=$1. Rc’ s wage rate is w Coconut output level is C. Labor supply is L
Competitive Equilibrium Now suppose RC is both a utilitymaximizing consumer and a profitmaximizing firm. Use coconuts as the numeraire good; i.e. price of a coconut = $1. RC’s wage rate is w. Coconut output level is C. Labor supply is L
Robinson crusoe as a firm RCs firm's profit is I=C-WL 丌=C-硎分C=丌+wL,the equation of an isoprofit line Slope =+ W. Intercept=兀
Robinson Crusoe as a Firm RC’s firm’s profit is = C - wL. = C - wL C = + wL, the equation of an isoprofit line. Slope = + w . Intercept =
Isoprofit lines oconu Its C=丌+w Higher profit;z1<丌2<兀3 Slopes =t w 321 0 24 Labor(hours)
Isoprofit Lines Labor (hours) Coconuts 24 C = + wL Higher profit; 1 2 3 Slopes = + w 3 2 1 0