<p>Note <span class="math-container">$E=\int x(j)p(j) dj = 1$</span> and the solutions are symmetric, you can get <span class="math-container">$x(j)p(j) = 1/n$</span>.</p>
<p>Then use [10], <span class="math-container">$\pi(j)=(1-\alpha)p(j) x(j)=(1-\alpha)/n$</span>.</p>

CC BY-SA 4.0
2022-08-01T18:09:39.603Z
2022-08-01T18:09:39.603Z
Alalalalaki
<p>Consider the expanding product variety model of Grossman &amp; Helpman (1991), given an equilibrium price for the intermediate sector equal to <span class="math-container">$w/\alpha$</span>, how do the authors get the following result for the brand operating profits?</p>
<p><span class="math-container">$\pi = \frac{1-\alpha}{n}$</span> , where <span class="math-container">$n$</span> is the number of varieties</p>
<p>Model settings:</p>
<p><strong>Consumption side of the economy</strong></p>
<p><span class="math-container">$U_t = \left(\int_{t}^{\infty} e^{-\rho(\tau-t)} logD(\tau) \; d\tau\right) ~~~ [1]$</span></p>
<p>with <span class="math-container">$D(\tau)$</span> reflecting the household's tastes for diversity in consumption and these tastes will generate demands for differentiated products. Let us assume that at each instant in time the number of varieties available in the economy is in the interval <span class="math-container">$[0, n(t)]$</span>, with <span class="math-container">$n(t)$</span> being the number of available varieties at <span class="math-container">$t$</span>.</p>
<p>We impose the following specification for D such that we have constant elasticity of substitution between every pair of goods:</p>
<p><span class="math-container">$D = \left[\int_{0}^{n} x(j)^{\alpha} dj\right]^{1/\alpha}~~~ [2]$</span>, with <span class="math-container">$~~~0&lt;\alpha&lt;1$</span>, and this makes goods gross substitutes since EoS&gt;1</p>
<p>Then, an household spending <span class="math-container">$E$</span> maximizes instantaneous utility by purchasing <span class="math-container">$x(j)$</span> units of a variety <span class="math-container">$j$</span>, with  (by using Dixit-Stiglitz lite, i.e. lover for variety):</p>
<p><span class="math-container">$x(j) = \frac{Ep(j)^{-\epsilon}}{\left[\int_{0}^{n} p(j')^{1-\epsilon} dj'\right]} ~~~ [3]$</span></p>
<p>Now, interpret <span class="math-container">$D$</span> as single homogenous consumption good consumed by the household, and <span class="math-container">$D$</span> is consumed competitively according to technology given by [2]</p>
<p>The equilibrium price <span class="math-container">$p_D$</span> is equal to:</p>
<p><span class="math-container">$\lambda= p_D =\left[\int_{0}^{n} p(j)^{1-\epsilon} dj\right]^{\frac{1}{1-\epsilon}} ~~~ [4]$</span></p>
<p>The demand for input <span class="math-container">$j$</span> by a firm that manufactures <span class="math-container">$D$</span> units of the final good, by using Shephard's Lemma, is given by:</p>
<p><span class="math-container">$x(j) = D p(j)^{-\epsilon} \left[\int_{0}^{n} p(j')^{1-\epsilon} dj'\right]^{-\frac{1}{\alpha}} ~~~ [5]$</span></p>
<p>Equilibrium condition in the market of the final output: <span class="math-container">$D=E/p_D ~~~[5.1]$</span></p>
<p>Then, given <span class="math-container">$[2]$</span>, <span class="math-container">$x(j)=x$</span>, and thus <span class="math-container">$D= n^{\frac{1}{\alpha}}x$</span>, and use <span class="math-container">$X= nx$</span> to denote the amount of resources embodied in the final good.</p>
<p>Thus, the final output per unit of final input (TFP) is given by:</p>
<p><span class="math-container">$D/X = n^{\frac{1-\alpha}{\alpha}}~~~[6]$</span>, and so the productivity of a given stock of resources rises with the number of available varieties.</p>
<p>Then, plugging [5.1] into [1] and maximizing, we get: <span class="math-container">$\dot{E}/E = r- \rho ~~~ [7]$</span></p>
<p>Then, normalize <span class="math-container">$E$</span> to 1, i.e. <span class="math-container">$E=1~~~ [8]$</span></p>
<p>At equilibrium <span class="math-container">$r=\rho$</span></p>
<p><strong>Production Variety</strong></p>
<p>Assume production varieties are produced in monopolistic competition, and each firm supplies a unique variety <span class="math-container">$j$</span> and one unit of variety can be produced with one unit of labor only.</p>
<p>Thus, the profit function for the variety <span class="math-container">$j$</span> is given by:</p>
<p><span class="math-container">$\pi(j) = p(j)x(j) -wx(j)$</span></p>
<p>Equilibrium price: <span class="math-container">$p(j) = (1/\alpha)w ~~~[10]$</span></p>
<p>And <span class="math-container">$\pi = \frac{1-\alpha}{n}$</span>, with <span class="math-container">$E=1$</span>. Where <strong>this guy comes from?</strong></p>

CC BY-SA 4.0
2022-07-31T23:00:20.033Z
Can you either give the paper linkage or write down the model setting?
Alalalalaki
CC BY-SA 4.0
2022-08-01T08:03:43.137Z
@Alalalalaki the reference book is: "Innovation and Growth in the Global Economy, Chapter 3, Grossman and Helpman". The reference paper is: "Quality Ladders in the theory of Growth (Grossman & Helpman, 1991)", and you'll find my equations starting from point (18). Note that l normalized total consumer spending, i.e. E, to 1. Btw, I'm going to add some details to my question
Maximilian
<economic-growth>
Expanding product variety - Grossman & Helpman 1991
Maximilian
# Expanding product variety - Grossman & Helpman 1991

(Asked by: username_0 on 2022-07-31)

Consider the expanding product variety model of Grossman & Helpman (1991), given an equilibrium price for the intermediate sector equal to $w/\alpha$, how do the authors get the following result for the brand operating profits?

$\pi = \frac{1-\alpha}{n}$ , where $n$ is the number of varieties

Model settings:

**Consumption side of the economy**

$U\_t = \left(\int\_{t}^{\infty} e^{-\rho(\tau-t)} logD(\tau) \; d\tau\right) ~~~ [1]$

with $D(\tau)$ reflecting the household's tastes for diversity in consumption and these tastes will generate demands for differentiated products. Let us assume that at each instant in time the number of varieties available in the economy is in the interval $[0, n(t)]$, with $n(t)$ being the number of available varieties at $t$.

We impose the following specification for D such that we have constant elasticity of substitution between every pair of goods:

$D = \left[\int\_{0}^{n} x(j)^{\alpha} dj\right]^{1/\alpha}~~~ [2]$, with $~~~0<\alpha<1$, and this makes goods gross substitutes since EoS>1

Then, an household spending $E$ maximizes instantaneous utility by purchasing $x(j)$ units of a variety $j$, with (by using Dixit-Stiglitz lite, i.e. lover for variety):

$x(j) = \frac{Ep(j)^{-\epsilon}}{\left[\int\_{0}^{n} p(j')^{1-\epsilon} dj'\right]} ~~~ [3]$

Now, interpret $D$ as single homogenous consumption good consumed by the household, and $D$ is consumed competitively according to technology given by [2]

The equilibrium price $p\_D$ is equal to:

$\lambda= p\_D =\left[\int\_{0}^{n} p(j)^{1-\epsilon} dj\right]^{\frac{1}{1-\epsilon}} ~~~ [4]$

The demand for input $j$ by a firm that manufactures $D$ units of the final good, by using Shephard's Lemma, is given by:

$x(j) = D p(j)^{-\epsilon} \left[\int\_{0}^{n} p(j')^{1-\epsilon} dj'\right]^{-\frac{1}{\alpha}} ~~~ [5]$

Equilibrium condition in the market of the final output: $D=E/p\_D ~~~[5.1]$

Then, given $[2]$, $x(j)=x$, and thus $D= n^{\frac{1}{\alpha}}x$, and use $X= nx$ to denote the amount of resources embodied in the final good.

Thus, the final output per unit of final input (TFP) is given by:

$D/X = n^{\frac{1-\alpha}{\alpha}}~~~[6]$, and so the productivity of a given stock of resources rises with the number of available varieties.

Then, plugging [5.1] into [1] and maximizing, we get: $\dot{E}/E = r- \rho ~~~ [7]$

Then, normalize $E$ to 1, i.e. $E=1~~~ [8]$

At equilibrium $r=\rho$

**Production Variety**

Assume production varieties are produced in monopolistic competition, and each firm supplies a unique variety $j$ and one unit of variety can be produced with one unit of labor only.

Thus, the profit function for the variety $j$ is given by:

$\pi(j) = p(j)x(j) -wx(j)$

Equilibrium price: $p(j) = (1/\alpha)w ~~~[10]$

And $\pi = \frac{1-\alpha}{n}$, with $E=1$. Where **this guy comes from?**

**Tags:** economic-growth
> **Comments:**
> **username_1**: Can you either give the paper linkage or write down the model setting?  
> **username_0**: @Alalalalaki the reference book is: "Innovation and Growth in the Global Economy, Chapter 3, Grossman and Helpman". The reference paper is: "Quality Ladders in the theory of Growth (Grossman & Helpman, 1991)", and you'll find my equations starting from point (18). Note that l normalized total consumer spending, i.e. E, to 1. Btw, I'm going to add some details to my question  

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## 1 answers

### Answer by username_1 on 2022-08-01. Score: 2 | Accepted answer

Note $E=\int x(j)p(j) dj = 1$ and the solutions are symmetric, you can get $x(j)p(j) = 1/n$.

Then use [10], $\pi(j)=(1-\alpha)p(j) x(j)=(1-\alpha)/n$.


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