Problem 2: Production ModelSuppose that firms produce according to the following production function:Y = At(K₂) (Lt) (N₁) ¹-a-Bwhere At captures productivity, K, capital, L, labor, and N, land available for business use. Wecan define wt as wages, rk as rental rates for capital, and r as rental rates for land usage.(a)(b)Write down the firm's profit maximizing problem. Be sure to identify the vari-ables the firm can choose and which it takes as given.Are there increasing returns to labor (L)? Land (N)? Explain. (c)The MP curve is typically given by R-F = m(t). How would this equationchange if the Federal Reserve responded to deviations in inflation from its target anddeviations in short-run output from its potential level? Explain.(d)In deriving the Phillips curve, if expected inflation were not equal to past infla-tion, what would be the form of this curve? Could we draw it in the same way? Explain.raw the IS-MP diagram. Suppose that there was a housing bubble in the economy thatarst (think Great Recession).What would happen in the IS-MP diagram and corresponding Phillipscurve? what would be the initial impact on the interest rate, short-run output, andinflation? Explain.Sycholl

Yt=At(Kt)α(Lt)β(Nt)1-α-β Yt-- outputAt-- productivityKt-- capitalLt-- laborNt-- landwt-- wage…

roduction Model Suppose that firms produce according to the following production function: Y = At(K)" (Lt) (N₂) ¹-a-B where A, captures productivity, K, capital, L, labor, and N, land available for business use. We can define wt as wages, rk as rental rates for capital, and r as rental rates for land usage. (a) Write down the firm's profit maximizing problem. Be sure to identify the vari- ables the firm can choose and which it takes as given.

roduction Model Suppose that firms produce according to the following production function: Y = At(K)" (Lt) (N₂) ¹-a-B where A, captures productivity, K, capital, L, labor, and N, land available for business use. We can define wt as wages, rk as rental rates for capital, and r as rental rates for land usage. (a) Write down the firm's profit maximizing problem. Be sure to identify the vari- ables the firm can choose and which it takes as given.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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