In an economy the interest rate is 5% and the depreciation rate is 20%. The price of capital is 1. A firm has the following production function Y=AK05N0.5 a. Find the marginal cost of capital b. Compute the investment desired by the firm, knowing that A=2, K=8, N=1. c. If the economy is a close economy, what is the amount of national savings? Instead, what if this was an open economy? Explain. d. If the government imposes a tax on firm revenues of 25%, how does the investment desired change? Compute it and show what happens in the Investment-Savings diagram, assuming this is an open economy and the government completely waste the revenues of this tax.

In an economy the interest rate is 5% and the depreciation rate is 20%. The price of capital is 1. A firm has the following production function Y=AK05N0.5 a. Find the marginal cost of capital b. Compute the investment desired by the firm, knowing that A=2, K=8, N=1. c. If the economy is a close economy, what is the amount of national savings? Instead, what if this was an open economy? Explain. d. If the government imposes a tax on firm revenues of 25%, how does the investment desired change? Compute it and show what happens in the Investment-Savings diagram, assuming this is an open economy and the government completely waste the revenues of this tax.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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