Saturday, October 28, 2006

All right here are a couple.

a) Regarding question 1: I can get something that has all the same terms as eq2 above (note: z1 = zt and z2 = zt+1) by taking the ln of the profit equation ((9.10) in book) and solving for N. The only problem is it also has terms with 'I' and 'pi' in them. How do I get rid of those?

b) From question 3: what is the intuition for c going down when w goes up (eq4 above)?

c) If someone could give me a hint as to what the deal is with question 4, that would be great too.

5 Comments:

At 12:05 PM, October 28, 2006, Blogger K8 said...

Hiya Henry, finally got this to work. You must first maximize profit, setting dpi/dn equal to the wage rate, then take the log of everything. pi will then magically disappear.

 
At 3:00 PM, October 28, 2006, Blogger Henry said...

I guess it was kind of dumb of me not to optimize it. But I still get a term I don't want. It's an extra (log alpha)/(1-alpha). Why am I dumb now?

 
At 6:30 PM, October 28, 2006, Blogger Beth said...

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At 6:25 PM, October 29, 2006, Blogger Heather said...

c goes down when w goes up because the wage had to have increased by enough that the Substitution Effect is outweighed by the Income Effect, making leisure more desirable than work at the new wage.

 
At 12:15 AM, October 30, 2006, Blogger Troy said...

Hey Henry. I am having the same problem. After maximizing the firms profit and taking the log and solving for n, I am gettting an extra ln(alpha)/1-alpha. have you made any progress with this?

 

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