Problem 1AAccording to the new classical investment model we have:PMPK =* (r + 8)(1)Derive the above cquation and explain it briefly.Suppose that a firm has a production function ofY = AKOSL 05i.ii.where Y is output, A is productivity (or technology), K is capital and L islabour. When A = 2, K = 100 and L = 400. Obtain the marginal product ofсapital (MPK).Consider a production function that Y = AK²L², where A = 0.1, L = 1, Px =1,P= 1,r=0.1, and 8=0.1. What is the optimal level of capital, K*, in the steadystate?Problem 1B Total Investment equation is given by:I = AK + 6K = 4 [MPK –4(+ + 8)] + &K,(2)PNext, draw a downward-sloping investment function where the vertical axis islabeled with r and the horizontal axis is labeled with investment, I. Call it Figure1.Assume that the rate of interest rate is ri and investment is I1. What will happento the investment if interest rate decreases? Explain it using Figure 1.What will happen to the investment if technology improves due to some newinventions. Explain it using Figure 1.ii.

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Problem 1A| According to the new classical investment model we have: MPK =(r + 8) (1) i. Derive the above equation and explain it briefly. Suppose that a firm has a production function of Y= AK®$L 05 ii. where Y is output, A is productivity (or technology), K is capital and L is labour. When A = 2, K= 100 and L= 400. Obtain the marginal product of саpital (MPK). Consider a production function that Y = AK²L², where A = 0.1, L= 1, Px =1, P=1,r=0.1, and &=0.1. What is the optimal level of capital, K*, in the steady iII. state?

Problem 1A| According to the new classical investment model we have: MPK =(r + 8) (1) i. Derive the above equation and explain it briefly. Suppose that a firm has a production function of Y= AK®$L 05 ii. where Y is output, A is productivity (or technology), K is capital and L is labour. When A = 2, K= 100 and L= 400. Obtain the marginal product of саpital (MPK). Consider a production function that Y = AK²L², where A = 0.1, L= 1, Px =1, P=1,r=0.1, and &=0.1. What is the optimal level of capital, K*, in the steady iII. state?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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