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The Cobb-Douglas production function takes the form Q= AKa L1-a (a=alpha) where Q is the amount of output, K is the amount of capital input, and L is the amount of labor input. Suppose that a firm faces a linear cost-of-inputs function C= wL + rK where C is the cost of inputs, w is the wage rate, and r is the rental rate on capital
(a) Set up a Lagrangian function reflecting the constrained optimization problem of obtaining the most output given a budget C to spend on inputs. Solve this for the optimal levels of capital and labor (Answer: K= (C. alpha)/r , L= C .(1-alpha)/ w )
(b) Set up a Lagrangian function reflecting the constrained optimization problem of spending the least amount on inputs given that the level of output must equal the amount Q. Solve this for the optimal levels of capital and labor. (Answer: K= Q/A .(alpha/ 1-alpha) ^ 1-alpha . (w/r) ^ 1-alpha , L = Q/A . (alpha/ 1-alpha) ^ -alpha . (w/r)^ - alpha
Explain what was happening to the economy in terms of the AS/AD model, including what would need to happen to bring us out of the "recessionary gap". In other words, using the AS/AD model as a starting point, explain the economic situation of 2008..
Pick a real-life rm that bundles products in some way. Describe how this pricing function is a form of price discrimination; in other words, why do some consumers effectively "pay more" for a particular product than other consumers do? Why is it a..
Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether it produces any output-How does this tax affect the firm's fixed, marginal, and average costs?
A) explain hospital behavior in which the hospital administrators are maximizing their own utility functions by competing on the basis of quality B) explain the contrasting situation in which the doctors on the medical staff
For each of the following concepts provide a definition, a complete explanation as to their significance, and a practical example.
Use aggregate demand (AD) and aggregate supply (AS) model in which the short run aggregate supply curve slopes upwards to illustrate the equilibrium level of real GDP and prices if the economy is operating:
Provide an example of how fiscal also monetary policies compliment or work against each other.
Suppose that, as the chair of the Fed, you decide to "put policy on automatic pilot" and needs that monetary policy follow an established rule.
There are two goods in the economy, anchovies (a fish) and bananas ( a farm product). Draw the economy's production possibilities before and after a natural disaster that lowers the banana harvest but does not affect anchovies.
Suppose the marginal expense of hiring another worker is $150 and the marginal expense of hiring current workers for an extra hour is $10.
ECO 201 Unit 4 Homework Assignment. Assignment Direction At the end of each chapter is a section titled "Key Concepts", and next to each concept is a corresponding page where you will find its definition. Please expand on the text's given definition,..
Discuss how your answer relates to the income and substitution effects of a price change from Knoxville food prices to Berkeley food prices.
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