Principles of Macro. (Looseleaf)-With Access (Custom)
Principles of Macro. (Looseleaf)-With Access (Custom)
11th Edition
ISBN: 9781269334082
Author: CASE
Publisher: PEARSON
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Chapter 16, Problem 14P
To determine

Adjustment costs, excess labor and excess capital.

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Explain why the optimal stock of capital chosen by firms is such that the marginal productivity of capital is equal to one plus the real interest rate.
Galaxy, a multinational corporation, has two plants, one in the United States and the other in Mexico, and it cannot change the size of the plants or the amount of capital equipment in the short run. The wage in Mexico is equivalent to US $5 per hour. The wage in the U.S. is $25 per hour. Given current employment situation, the productivity per worker in Mexico is 200 units per hour, and the productivity per worker in the U.S. is 400 units per hour.Is Galaxy maximizing output relative to its labor cost? If not, what should Galaxy do? Justify your
In an effort to stop the migration of many of the automobile manufacturing facilities from the Detroit area, Detroit’s city council is considering passing a statute that would give investment tax credits to auto manufacturers. Effectively, this would reduce auto manufacturers’ costs of using capital and high-tech equipment in their production processes. On the evening of the vote, local union officials voiced serious objections to this statute. Outline the basis of the argument most likely used by union officials. (Hint: Consider the impact that the statute would have on auto manufacturers’ capital-to-labor ratio.) As a representative for one of the automakers, how would you counter the union officials’ argument?
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