10 15. Consider a single competitive firm that starts off with zero capital in time 1. It's trying to decide howmuch capital to acquire in the next period, time 2. Like any real-world competitive firm, it's trying tomaximize the net present value of its profits.It'll have to rent that capital from the market at price r>0 per unit of capital when time 2 arrives. Wedon't have to worry about depreciation-the rental rate is the only price we need to worry about.Output in time 2 is made this way:Y2 = zK,Where the exponent a is strictly between zero and one and z is strictly positive. This is an entirelyconventional firm net present value maximization problem.a. Solve for the optimal level of time 2 capital solely as a function of exogenous parameters:K2 =b. What is the elasticity of optimal capital with respect to the interest rate? Answer as a function ofexogenous parameters:elasticity =c. In this model, is there such a thing as too much productivity? In other words, can the derivativedK2 /dz be strictly negative in some cases, the way this model is set up?

Production function : Y2 = zK2a Input price K = r Competitive firms optimize their output at a…

15. Consider a single competitive firm that starts off with zero capital in time 1. It's trying to decide how much capital to acquire in the next period, time 2. Like any real-world competitive firm, it's trying to maximize the net present value of its profits. It'll have to rent that capital from the market at price r>0 per unit of capital when time 2 arrives. We don't have to worry about depreciation-the rental rate is the only price we need to worry about. Output in time 2 is made this way: Y₂ = 2K₂a

15. Consider a single competitive firm that starts off with zero capital in time 1. It's trying to decide how much capital to acquire in the next period, time 2. Like any real-world competitive firm, it's trying to maximize the net present value of its profits. It'll have to rent that capital from the market at price r>0 per unit of capital when time 2 arrives. We don't have to worry about depreciation-the rental rate is the only price we need to worry about. Output in time 2 is made this way: Y₂ = 2K₂a

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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