Problem 1A According to the new classical investment model we have: MPK =* (r + 8) (1) i. Derive the above equation and explain it briefly. Suppose that a firm has a production function of Y= AKOSL 05 ii. where Y is output, A is productivity (or technology), K is capital and L is labour. When A = 2, K = 100 and L = 400. Obtain the marginal product of capital (MPK). Consider a production function that Y = AK²L², where A = 0.1, L = 1, Px =1, iii. P = 1, r= 0.1, and 8=0.1. What is the optimal level of capital, K*, in the steady state?

Problem 1A According to the new classical investment model we have: MPK =* (r + 8) (1) i. Derive the above equation and explain it briefly. Suppose that a firm has a production function of Y= AKOSL 05 ii. where Y is output, A is productivity (or technology), K is capital and L is labour. When A = 2, K = 100 and L = 400. Obtain the marginal product of capital (MPK). Consider a production function that Y = AK²L², where A = 0.1, L = 1, Px =1, iii. P = 1, r= 0.1, and 8=0.1. What is the optimal level of capital, K*, in the steady state?

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 9CQ

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