Alex and Betty get utility from leisure and from driving their vehicles d The utility...

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Alex and Betty get utility from leisure and from driving their vehicles d The utility of Alex is given by Ua la d da d and the utility of Betty is given by Ub lv 2 1 2 da d The last term da d is the negative effect of air pollution Each has an initial endowment of 1 unit of time and no endowment of driving In order to drive they must sell their labor at price p and purchase d i e pay for the vehicle gas etc at price pa A perfectly competitive firm produces vehicle driving using production function D L a 2 pts Setup the household and firm problems in this competitive market environment b 6 pts Solve for the competitive equilibrium in this economy Report the utility of each consumer

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Alex and Betty get utility from leisure and from driving their vehicles d The utility of Alex is given by Ua la d da d and the utility of Betty is given by Ub lv 2 1 2 da d The last term da d is the negative effect of air pollution Each has an initial endowment of 1 unit of time and no endowment of driving In order to drive they must sell their labor at price p and purchase d i e pay for the vehicle gas etc at price pa A perfectly competitive firm produces vehicle driving using production function D L a 2 pts Setup the household and firm problems in this competitive market environment b 6 pts Solve for the competitive equilibrium in this economy Report the utility of each consumer