Consider the production function: Y = K²/3L2/3 Suppose the supply of capital is 8 and the supply of labor is 27. In equilibrium, the real wage rate W/P and the real rental rate of capital R/P will be W/P = 3/4 and R/P = 4/9 W/P = 4/9 and R/P = 3/4 W/P = 2/27 and R/P = 3/2 W/P = 3/2 and R/P = 2/27 O O O O
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- The production function is Cobb-Douglas: Y = AK^αL^1−α, where K = 1000, and L = 100. α=0,365 A=2,3 a) How much output does the economy produce?b) What is the real wage rate equal to in equilibrium? c) What is the real rental rate of capital equal to in equilibrium?Consider a competitive, closed economy with a Cobb-Douglas production function with parameter α = 0.25. The parameter A is equal to 60. Assume also that capital is 100, labor is 100. Assume that in this economy consumption (C) is given by the equation C = 600 + 0.6(Y – T). Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500. (Hint: use the GDP obtained in part a). What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving?Assume that there is a discovery of new accessible iron ore deposits off the coast of Newfoundlanc and Labrador and that because of this discovery, people from British Columbia migrate to Newfoundland and Labrador in search for higher paying jobs. What would be the impact on the equilibrium level of real wages and employment in the iron ore sector in Newfoundland and Labrador? Assume that we do not know the magnitude of any changes. the equilibrium real wage rate will decrease but the equilibrium level of employment will increase. 0.the equilibrium level of employment will increase but the change in the real wage rate is unknown. 0.the equilibrium real wage rate will increase but the change in the equilibrium level of employment is unknown. 0.the equilibrium real wage rate will decrease but the change in the equilibrium level of employment is unknown. 0.the equilibrium real wage rate and the equilibrium level of employment will increase.
- Assume that an economy's production function is Y=1,000L1/2,so that when the marginal product of capital is equated to the real wage the labor demand curve is L = 250,000(P/W)2. The labor supply curve is L = 31,250(W/P). The real wage that solves these equations is W/P = 2. Assume that the expected price level is 10, so that a nominal wage contract setting the wage at 20 is agreed to, making the expected real wage 2. If the price level turns out to be 10, 62,500 workers will be hired and output will be 250,000. If the actual price level turns out to be 20, what will the actual real wage be?b. According to the labor demand curve, how much labor will be demanded if the actual real wage is at the level given in part a?c. According to the production function, if the amount of labor given in part b is actually hired, how much will production be?Consider an economy in which the marginal product of labour is given by MPN = A(150 − N), where N is the amount of labor used. The amount of labour supplied is given by 60 + 5(1 − t)w, where w is the real wage and t is the tax rate on labour income. (a) Suppose A = 2 and t = 20%. Calculate the equilibrium levels of real wage and employment. (b) Suppose that the economy experiences an adverse supply shock and A = 1. Everything else remains the same as before. Calculate the equilibrium levels of real wage and employment in this case. (c) Suppose that the government lowers the labour income tax by 50% following the adverse supply shock, i.e., A = 1 and t = 10%. Calculate the equilibrium levels of real wage and employment in this case. (d) Use the labour market diagram to illustrate the adjustments from the original equilibrium in part (a) to the equilibrium in part (b) and then the adjustments from the equilibrium in part (b) to the equilibrium in part (c). Explain the adjustments from…Determine equilibrium levels of income and consumption for the following functions. a.C=20+0.75y,I=20, b.C=50+0.60y and I=30.where C&I, are consumption and investment respectively in billions of naira
- Suppose that the government grants investment tax credits without changing the overall tax revenue T. In this case, the investment demand function will shift _____, but in equilibrium, the quantity demanded of I will _____ because r will increase.Looking at business fixed investment, elaborate on why investment is negatively related to theinterest rates.b. Using the Tobin’s q theory, elaborate on the relationship between investment and capitalstock?c. If the market value of firm A is $1.5 million and the replacement cost of capital is $450,000, find the Tobin's q.d. Should the firm replace capital? Elaborate on your response.Solve for equilibrium consumption and labour choices. Derive the equation that determines how much revenue the government will receive for a given rate of tax t. What is this relationship called?
- 1. An economy's firms produce goods along the Cobb-Douglas production function: Y = A * K^0.5 * L^0.5 For it, the marginal product of a worker is MPL = 0.5 * A * K^0.5 / L^0.5, in which K = 16 Workers bargain for wage by looking at the rate of unemployment and inflationary surpise: w = 2 * EP/P *L^0.5 K = 16. The economy is in equilibrium at EP=P=1 and A=9. In it, the number of workers is L=9 and the wage is =6. Now, thanks to temporarily abundant oil, the productivity changed from A=9 to A=16. Find the new equilibrium number of workers. 2. Find the new equilibrium wage at A=16. 3. Graph the change in the labor market equilibrium. Mark the before and after equilibria with E0 and E1. Label axes and curves, map relevant values onto axes.Suppose the demand for labor is given by MPN = 200 - 0.5N where N is the number of workers and MPN = the real wage w. The supply of labor is given by 100 + 4w where w is the real wage. The government imposes a minimum wage of 60. This minimum wage creates ____. unemployed workers (willing to work at this wage but do not have jobs) in this labor market.The firm you work for wants you to provide some insight into the investment environment in Mexico before deciding to enter the market. You conduct some research and find a large dispersion of MRPK across firms in Mexico. You also notice that state-owned firms have lower MRPK. Which of the following observations can you make? (there can be more than 1) Firms in Mexico have a hard time expanding due to constraints on the labor market Private firms are at an advantage in Mexico as they face lower capital costs than those owned by the state Resources are likely misallocated because capital is not flowing from firms with low MRPK to firms with high MRPK Your firm may find it more costly to borrow than its state-owned competitors