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This exercise shows that entry barriers typically lead to multiple equilibrium wages in dynamic models. Consider the following two-period model. The production function is given by (23.2), and the distribution of entrepreneurial talent is given by a continuous cumulative distribution function G(a). There is an entry cost into entrepreneurship equal to b at each date, and each entrepreneur hires one worker (and does not work as a worker himself ). Total population is equal to 1.
(a) Ignore the second period and characterize the equilibrium wage and determine which individuals become entrepreneurs. Show that the equilibrium is unique.
(b) Now introduce the second period, and suppose that all agents discount the future at the rate β. Show that there are multiple equilibrium wages in the second period and as a result, multiple equilibrium wages in the initial period.
(c) Suppose that a fraction ε of all agents die in the second period and are replaced by new agents. New agents have to pay the entry cost into entrepreneurship if they want to become entrepreneurs. Suppose that their talent distribution is also given by G(a). Characterize the equilibrium in this case and show that it is unique.
(d) Consider the limiting equilibrium in part c with ε → 0. Explain why this limit leads to a unique equilibrium while there are multiple equilibria at ε = 0.
Suppose the money supply is currently $500 billion and theFed wishes to increase it by $100 billion. If it decided to change the money supply by changing the required reserve ratio, what change should it make
Indicate in each case the impact on external and internal balance as well as the appropriate policy response.
Compute the profit-maximizing price and output combination.
project management and systems engineering are divided into two distinct categories. What management tasks are missing from the figure?
Using a combined interest rate per interest period (d) for computing present worth values (PW). What is the present worth of the $1,000,000.00. if the formula for d is d = i + f + (i × f) and the inflation rate (f)=2.3%
Calculate a new consumer price index for the data in the following exhibit. Assume that current-year prices of twinkies, fuel oil and cable tv are $0.95/package, $1.25/gallon, and $15.00/month, respectively.
Suppose the market demand curve for a product is given by: Qd = 500 - 15P + 20I and the market supply schedule is: Qd = -25 + 10P + 10K. The initial values are I = 10, K = 5. a) What are the equilibrium price and quantity in this market
You recently read a report indicating that about 80 percent of all tourists visit Florida during the winter months in any given year, and that 60 percent of all tourists traveling to Florida by air rent automobiles.
What is the value of the RSS - What are the d.f. of the ESS and RSS?
A local video store estimates their average customer's demand per year is Q = 7 - 2P, and knows the marginal cost of each rental is 50 cents. How much should the store charge for each rental if it engages in optimal two-part pricing
There are two players i = 1,2. Each player announces a number xi ? {0, 1, 2,...,10}g and the announcement is done simultaneously. The one who says lower number wins. If the player wins, he gets 1$, if he loses, he gets 0.
Using demand and supply analysis what will be the impact on price and quantity in the market for yoga services.
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