Answer to Question #165026 in Microeconomics for getaye

Question

A competitive economy with private ownership consists of 100 workers and 100 capitalists, and three goods: labour, robots, and pie. Each capitalist owns one robot and a firm that produces pie according to the production function C = min (R, L), where R is the number of robots and L the number of employed people. Both workers and capitalists can work (own an endowment that includes labour), but workers own nothing else but their labour. All workers and capitalists derive utility only from the pie they consume. Nobody has an initial endowment of pie.

A.   Determine equilibrium prices and quantities. 

Answer 1

Since each capitalist owns only one robot, then C = 1, since each capitalist has at least 1 in a hundred workers, if we consider the model as ideal. Then the equilibrium will be established at the level of 50 equilibrium quantity and 50 equilibrium price.