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Suppose an economy’s production possibilities are represented by the function Y = A K L where Y represents total output (i.e GDP), K is capital, L is labor, and A is total factor productivity (TFP) (aka efficiency or productivity parameter). Moreover, suppose that there is a fixed supply of capital equal to 10 and a fixed supply of labor equal to 2. TFP is equal to 1.
Set up the problem of a representative (aggregate firm) that maximizes profits taking as given a rental rate for capital (r) and a wage (w).
Calculate the equilibrium rental rate of capital and the equilibrium wage.
Suppose that there is a shift in labor supply and wages drop by approximately 50%. How large is the shift? What happens to the equilibrium rental rate of capital? Discuss your results.
Consider the following situation. An individual may decide to pay taxes of $1200 or evade them. Assume that if the individual evades taxes and is audited, he pays a fine of $350, in addition to back taxes. Set up the strategic form (payoff table), w..
What is the probability that it will take a worker less than 4 minutes to complete the task? c. What is the probability that it will take a worker between 6 and 10 minutes to complete the task?
Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years before selling it. a. If the bond's yield to maturity is 6% when you sell it, what is the internal rate of return of your investment?
Under oligopolistic market conditions, a. the pricing actions of any one firm have no significant effect on the others b. the pricing actions of any one firm have a significant effect on the others c. no firm can have any control over its output pric..
John offers to sell Mary his refrigerator for $1000 cash payment due by April 1 2016. The refrigerator to be tendered to Mary upon payment. Mary says to John that she agrees. Is this a legally enforceable contract under the common law? Would the Stat..
$150,000 is deposited in a fund that pays 5% annual compound interest for 2 years, 3% annual compound interest for 2 years, and 4% annual compound interest for 2 years. If uniform annual withdrawals occur over the 6-year period, what will be the magn..
In a perfectly competitive market for electricity, consumers’ benefit (in dollars) from consuming electricity is given by B(Q)= -Q2+1000 Q, where Q is the unit of electricity consumed. Derive the demand for electricity in this market.
Certain behavior associated with anticipated inflation can:
Fifteen families live in Willow Cannon. Although several water wells have been drilled, none has produced water. The residents take turns driving a water truck to a fill station in a nearby town.
As consumers we loke competition because it lowers prices and increases supply. Many products and services we use started out with limited choices and high prices. Then for various reasons more competitors entered the market and our choices increased..
Illustrate what effect do rising interest rates have on the value of the Australian dollar. Use an AD/AS diagram to show the effects on Real GDP and the price level of an appreciating Australian dollar.
In the last few years, your company made a concerted effort to improve its minority hiring, so many of the new employees are minorities. How should you decide who to lay off?
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