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4

Note that: (i) exploitation of returns to scale is not without limits when $n_s \leq 1 $ (this actually excludes global returns to scale for any value of $(c,n)$) (ii) the firm can produce something from nothing as $F(0) \geq 0$ In this case the Figure below illustrates that a competitive equilibrium with positive profit can exist. Given (i) and (ii), the ...


5

Here is an example where the two are actually compatible: The consumer's utility function $U:\mathbb{R}_+\to\mathbb{R}$ is given by $U(c,1-n_ns)=c-n_s$, the initial labor endowment is $1$ and $F:\mathbb{R}_+\to\mathbb{R}$ is given by $$F(n)=n(1-e^{-n}).$$ This function has IRTS, but still turns a unit of labor into less than one unit of consumption at any ...


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