ECON 702 Midterm: prelim-S16_702_Menzio
Document Summary
Instructions: there is one question, divided in several subquestions. The number in brackets represents the number of points awarded for answering correctly the each subquestion. If the description of the environment seems incomplete to you, explain why, make the assumptions that you deem necessary to proceed and continue. Good luck: vacancies, unemployment and the capital market. (125 points) we develop and characterize the equilibrium of a version of mortensen and pissarides (restud 1994) in which rms need to nd both capital and labor to produce. Firms maximize the present value of pro ts discounted at the factor (0 1) (measured in units of output). Firms produce units of output when they have 1 unit of capital and 1 unit of labor. Firms enter the economy by paying a cost of 0 units of output. Firms exit the economy with probability (0 1) per period. Workers maximize the present value of income discounted at the factor (measured in units of output).
