SMU Classification: Restricted
Econ219 Homework 1 due in class in week 3
• Question 1: Recall the model in class. There are only two
skills required in a firm, denoted by x and y. Assume
Specialist income =maximum{x, y},
Entrepreneur income = G*minimum{x, y},
where G > 1 is the value of an entrepreneur.
Case 1 (if x>y) was solved in class. Now solve for Case 2 (if
x≤y) with both math derivation and graph illustration.
• Question 2 (optional): The income of entrepreneur is now
changed to a Cobb-Douglass function, while the specialist
income is still the same as in the above model.
Entrepreneur income = Gxa y1a
Will this change the general results in the basic model
above? Can you derive any new implications?
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SMU Classification: Restricted
Econ219 Homework 1 due in class in week 3
• Question 1: Recall the model in class. There are only two
skills required in a firm, denoted by x and y. Assume
Specialist income =maximum{x, y},
Entrepreneur income = G*minimum{x, y},
where G > 1 is the value of an entrepreneur.
Case 1 (if x>y) was solved in class. Now solve for Case 2 (if
x≤y) with both math derivation and graph illustration.
• Question 2 (optional): The income of entrepreneur is now
changed to a Cobb-Douglass function, while the specialist
income is still the same as in the above model.
Entrepreneur income = Gxa y1a
Will this change the general results in the basic model
above? Can you derive any new implications?