I am editing my question regarding solving the model in order to be more specific.

Regarding the demand side, In the beginning of the model, we have a CES utility function over a continuum of goods enter image description here

and we have this aggregate price: enter image description here

How do we use them to get these two equations ? (this is my first question) enter image description here

Regarding the production side, there is only one factor of production which is labor and it is in-elastically supplied, the cost function represents constant marginal costs and overhead cost. l = f +q/$\phi$.I understand that in order to get this pricing rule :

enter image description here

we should get the first order condition of the profit function, however I do not know where does the 1/$\rho$ came from ? (this is my second question)

I apologize if these questions seem silly but I do not have a theoretical background and I am trying to solve the model by myself.

Thanks in advance.

  • $\begingroup$ What exactly do you mean by "solving" the model? Are you trying to derive all the results from the basic equations? $\endgroup$
    – Giskard
    Commented Feb 26, 2023 at 19:49
  • $\begingroup$ If you are not a theory person, may I ask why you are doing this for your thesis...? $\endgroup$
    – Giskard
    Commented Feb 26, 2023 at 19:50
  • $\begingroup$ I need it as a theoretical motivation, the main contribution of my thesis is not theoretical, it is empirical, but I need a theoretical framework to motivate it and therefore I want to understand the model. $\endgroup$
    – zmhs
    Commented Feb 26, 2023 at 20:34
  • 1
    $\begingroup$ I am not familiar with the model, but you might get better responses if you edit your question to clarify/narrow down what it is exactly that you are looking for. $\endgroup$
    – Giskard
    Commented Feb 28, 2023 at 16:28
  • 1
    $\begingroup$ I suggest you post the specific parts you are struggling with. $\endgroup$
    – BB King
    Commented Feb 28, 2023 at 22:17


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