Modern Principles of Economics
Modern Principles of Economics
3rd Edition
ISBN: 9781429278393
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
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Chapter 31, Problem 1FT
To determine

Define the price level.

Expert Solution & Answer
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Explanation of Solution

The price level is the average price of goods and services produced in the country. The price level is measured in terms of the average price in the base year in the country. When the price level rises, the people have to spend more money to maintain the same standard of living.

Economics Concept Introduction

Concept introduction:

Price level: The price level refers to the average of the current prices across the entire variety of goods and services produced in the economy.

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Please answer questions D-H, I have already answered A , B,C but it may help you to still solve them yourself. Thank you!
2. A firm’s production function is given by:Q = 10KLThe unit capital and labour costs are 2 and 1 pounds respectively. The firm is contracted to produce2000 units.(a) Write out the optimisation problem of the firm. (b) Express this problem using a Lagrangian function. (c) Find values of K and L which fulfil the contract with minimal cost to the firm. (d) Calculate the total cost to the firm.
3. Consider the following estimated regression equation, estimated using a sample of firms, where RDis total firm spending on research and development in USD ($), Revenue is total firm revenuein USD ($), and W ages is the firms’ total spending on wages in USD ($) (standard errors inparentheses):RDd = 1000(600)+ 0.5(0.1)Revenue + 1.5(0.5)W ages,(a) Interpret the coefficients on each of the explanatory variables. (b) Which of the three coefficients are statistically significant at the 5% level of significance? Howdo you know? A researcher runs a two-sided statistical test of the null hypothesis that both the coefficients onthe explanatory variables above are jointly equal to 0.25 (mathematically, that β1 = β2 = 0.25),and reports a p-value of 0.045.(c) What does this p-value mean for the outcome of the test? (d) What would an appropriate two-sided alternative hypothesis look like?
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