Y = AK" L¹". Also assume that the supplies of capital and labor are fixed at K and I, respectively. The representative firm hires capital and labor in perfectly competitive markets and sells the output good for the price 1. (a) Solve for each endogenous variable in the production model: Y*, r*, w*, K*, L*. (b) Does an increase in TFP (A) increase or decrease r* and w*? Explain. (c) i. Does an increase in labor supply I increase or decrease r* and w*? Explain. ii. Does an increase in capital supply K increase or decrease r* and w*? Explain.

Y = AK" L¹". Also assume that the supplies of capital and labor are fixed at K and I, respectively. The representative firm hires capital and labor in perfectly competitive markets and sells the output good for the price 1. (a) Solve for each endogenous variable in the production model: Y, r, w, K, L. (b) Does an increase in TFP (A) increase or decrease r and w? Explain. (c) i. Does an increase in labor supply I increase or decrease r and w? Explain. ii. Does an increase in capital supply K increase or decrease r and w*? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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