Reference no: EM131244687
Consider a representative firm that produces using capital (K) and labor (N), but that owns no capital. The firm can hire workers in the labor market at a wage w and can rent capital market at a rental rate r (that is, the firm can rent K units of capital for which it would have to pay rK). The production function of the firm is given by zF (K, N) where: F (K, N) = KαN β and α + β < 1.
a) Does the technology exhibit constant returns to scale? If not does it exhibit increasing returns, decreasing returns, or neither?
b) Pose the profit maximization problem of the firm.
c) Find the firm’s optimal capital and labor demand. Hint: You can combine the firm’s FOC taking their ratio (diving one by the other) to get the labor demand as a function of the capital. Then you can use this to replace in the FOC to get the capital demand as a function of prices and parameters.
d) Find the firm’s optimal profits. Hint: Use the firm’s FOC to replace for the prices (r and w), then replace for labor as a function of capital (that you found above) and finally replace for the optimal capital demand.
e) What happens to the optimal profits when β = 1 − α?
|
Draw and label the world relative supply curve
: Consider a Ricardian model with two goods, cheese C and wine W. The unit labor input requirements are: aLC = 3, aLW = 2, aLC* = 2 , aLW* = 1 (an asterisk denotes a foreign variable). Draw and label the world relative supply curve.
|
|
Consider ricardian model with two goods
: Consider a Ricardian model with two goods, cheese C and wine W. The unit labor input requirements are: a LC = 3, a LW = 2, a LC * = 2 , a LW * = 1 (an asterisk denotes a foreign variable). The supply of labor in each country is 10. Which country has ..
|
|
Subsequent posting of consumer-generated ads are examples
: The timing of an event in a social world, the point at which a profile was activated, the timing of a contest conclusion, and subsequent posting of consumer-generated ads are examples of the time order of events that can be controlled for in:
|
|
How would pricing and materials costs factor into this
: Imagine that you are an economist and that you have been hired by a mid-sized hammer factory to advise the management team regarding how many hammers they should make in one month. Based on the scenario above, what information or guidelines would you..
|
|
Find the firms optimal capital and labor demand
: Consider a representative firm that produces using capital (K) and labor (N), but that owns no capital. The firm can hire workers in the labor market at a wage w and can rent capital market at a rental rate r. Find the firm’s optimal profits. Find th..
|
|
How many units should be produced by production process
: A Production Process A has a fixed cost of $340,000 and a variable cost of $145 per unit. Production Process B for the same product has the fixed cost of $1,250,000 and variable cost of $95.50 per unit. How many units should be produced by Production..
|
|
Making a rational human capital investment decision
: Why might the decision to undertake an educational program be treated as an investment? What are costs and benefits from a private perspective? What are costs and benefits from a social perspective? Explain why it is necessary to determine the presen..
|
|
Hitlers invasion afterwards as subgame perfect equlibrium
: The Diagram captures the situation in 1938. Chamberlain assesses the propability of hitler being amicable as p and that of him being beligerant as 1-p. Derive the condition on p that would support the signing of the Munich agreement and hitlers invas..
|
|
Two inputs in the production function-labor and capital
: Suppose there are two inputs in the production function, labor and capital, and these two inputs are perfect substitutes. The existing technology permits one machine to do the work of three workers. That is, you can produce one unit of output using e..
|