Investment decision in a two-period model Assume a two-period economy. The firm’s periodic profits are given by π = Y − wN − I π′ = Y ′ − w′N′ + (1 − d)K′ Firm maximizes the present value of it’s profits π + π′ 1 + r Suppose that the capital remaining after the second period production can be sold at price 1. Solve the optimal investment rule. The capital evolves according to K′ = (1 − d)K + I hint: Maximize the profits with respect to K

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