Principles of Economics
7th Edition
ISBN: 9781305156043
Author: N. Gregory Mankiw
Publisher: Cengage Learning US
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Chapter 16, Problem 2QCMC
To determine
An example of monopolistic competition .
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A firm faces the following production function,
Y = AKα L¹-a
(1)
Here Y is output, K is capital, L is fixed labour, and A is a measure of technology.
The firm uses an optimal amount of capital determined by the condition,
MPK = r +8
(2)
Where MPK is the marginal productivity of capital, r is the real interest rate, and ♪ is
the depreciation rate.
(a) Using equations (1) and (2) find an expression for K*, the optimal amount of
capital the firm should use.
[3 marks]
(b) Referring to your result from part (a), comment on what happens to K* when
each of the following variables change (holding other variables constant),
(i)
The measure of technology (A) falls
(ii)
The depreciation rate (8) increases
(iii)
The real interest rate (r) increases
[2 marks]
[2 marks]
[2 marks]
[Hint: For each of parts (i)-(iii) you are being asked to comment on what happens to
K* if just the variable mentioned in the question part changes. Your answer should
state whether K* increases, decreases, or stays the…
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labour supply if this was not the case? Briefly investigate how such a change could
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wage. (Your answer is likely to benefit from diagrammatic support.)
Refer to the attached Wk 3 Graph for this assignment. The graph shows an increase in demand (shifting of the demand curve from D1 to D2). Choose an application or situation in the economy or a specific economic situation to describe this graph. Take into consideration the impact on quantity and price in your analysis.
Given your analysis, what would cause the situation to go the opposite way? What would cause the situation to go further into the same direction?
Chapter 16 Solutions
Principles of Economics
Ch. 16.1 - Prob. 1QQCh. 16.2 - Prob. 2QQCh. 16.3 - Prob. 3QQCh. 16 - Prob. 1QRCh. 16 - Prob. 2QRCh. 16 - Prob. 3QRCh. 16 - Prob. 4QRCh. 16 - How might advertising reduce economic well-being?...Ch. 16 - Prob. 6QRCh. 16 - Prob. 7QR
Ch. 16 - Prob. 1QCMCCh. 16 - Prob. 2QCMCCh. 16 - Prob. 3QCMCCh. 16 - Prob. 4QCMCCh. 16 - Prob. 5QCMCCh. 16 - If advertising makes consumers more loyal to...Ch. 16 - Prob. 1PACh. 16 - Prob. 2PACh. 16 - Prob. 3PACh. 16 - Prob. 4PACh. 16 - Prob. 5PACh. 16 - Prob. 6PACh. 16 - Prob. 7PACh. 16 - Prob. 8PACh. 16 - Prob. 9PACh. 16 - Sleek Sneakers Co. is one of many firms in the...
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