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Suppose a firm uses both labor L and capital K as inputs to production. Its production function is of the Cobb-Douglas form, i.e. F (K,L) = K^1/3 L^2/ 3.The firm charges a price P for every good it sells, pays a nominal rental rate R to every unit of capital it hires and pays a nominal wage W to every unit of labor it hires. (a) Express the firm’s real revenues, real costs and real profits in terms of the variables defined above. (b) Assume the firm operates in goods markets,capital markets and labor markets that are perfectly competitive - that is, it takes R/P and W/P as given. Derive two conditions that will need to hold in order for the firm to maximize its profits ( Set the partial derivative of profits with respect to L equal to zero and the partial derivative of profits with respect to K equal to zero). (c) The first of these conditions should include the real wage rate W/P as well as K and L. This is the labor demand equation. The second condition should involve the real rental rate of capital R/P as well as K and L. This is the capital demand equation. Let us assume that labor is fixed L = 8 and focus on the capital demand equation. Plot the capital demand function when L = 8 (Show at least three points of the curve). (d) Suppose the supply of capital is inelastic and given by K^S = 27. Plot the capital supply line on the same graph as the capital demand curve. Find the real rental rate of capital that clears the market and show it on the graph. (e) How many goods will that firm produce?
If between 2003 and 2013 the economy's real gdp grew from 20 million to 40 billion, what was the average annual growth rate in the economy?
In 3-4 pages, discuss public interest, administrative responsibility and some of the recent ethical obligations confronting public administrators in their day to day decision making. Also examine the recent trend in privatizing government functions a..
The third largest city of a country has a population of 12.5 million.
q. 1. does easy access to distribution channels at best buy office depot as well as the direct- to- consumers on the
Compute price elasticity of demand and supply at the equilibrium price and quantity. Price elasticity of demand is equal to___ _ and price elasticity supply is equal to ____. On the same graph above, show the effect on equilibrium price and quantity ..
Assume that the distribution of starting salaries for newly qualified CA. Find out the probability that the std error.
Consider a class of 25 Microeconomics students, some of whom are confused about a concept after a professor explains it. A student who reveals his confusion by asking a question loses 10 utile. However, when the professor clarifies the concept, each ..
Using a market or industry as an example, explain how the Prisoners' Dilemma game helps explain observed (real-world) behavior among oligopolistic firms.
The principal benefit of tariff protection goes to: A ad valorem tariff provides domestic producers a declining degree of protection against import-competing goods during periods of changing prices. When the production of a commodity does not utilize..
Cost Minimization for Cobb-Douglas. Suppose the Acme Gumball Company has the production function of q=LK. Given that the MPL=K, MPK=L and MRT S=MPL/MPK. Suppose wage rate is w= $5 and rental rate is r= $5. What is the cost-minimizing combination of L..
Provide an example when it could be appropriate to conduct a time-series or cross sectional data. Discuss the potential problem that may arise with your example and identify strategies for minimizing the impact of the potential problem.
what is the least-cost input-combination of labor and capital and how much output is produced with that set of resources?
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