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Question 1) A consumer must decide how much of a good to consumein period 0 and period 1, co and c1 respectively. Goods not consumedin period 0 become capital, k1, and are used to produce more goodsin period 1. There is an initial amount of capital, k0, that producesgoods in period 0. The production function is f(kt) = kαt Each periodthe consumer gets a utility that depends on consumption in that periodgiven by u(ct) = log ctfor t = 0, 1. The consumer's objective isto maximize the discounted expected utility. Solve the maximizationproblem faced by the consumer.(1) maxco,c1log co + β log c1s.t. co + k1 ≤ kαoc1 ≤ kα1co ≥ 0, c1 ≥ 0Question 2) A price taking firm has a production function given byf(K, L) = K.25L.25. The price of output is normalized to 1, and theprices of L and K are w and r. Find the profit maximizing amountof K and L and verify that the second-order conditions or sufficientconditions are satisfied.
BK Books is an online book retailer that also has 10,000 "bricks and mortar “outlets worldwide. You are a risk-neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the..
The Marginal Productivity of Labor (MPL) is defined as dY/dL, meaning it measures how much more output (Y) is produced with one more additional unit of Labor (L). Likewise the Marginal Productivity of Capital (MPK) is defined as dY/dK, meaning it mea..
In all of our previous discussions about compensation levels, we never discussed the possibility that employees were paid too much. What is different about paying CEO’s that makes overpayment a possibility? Consider the two models of CEO pay: skimmin..
If supply of cars decreases and demand for cars decreases, then the equilibrium
Some collective bargaining agreements contain “union standards” clauses that prohibit the employer from subcontracting with firms that pay wages below those specified in the agreement. That is, the employer is prohibited from farming out work normall..
Based on the date provided through the U.S. Department of the Treasury, is the public devt of the US government increasing or decreasing? What impact will this trend have on the budget of the federal government and on the U.S. economy as a whole?
What do researchers have to say about the relation between a firm’s productivity and exposure to global competition? Provide 2 real- world examples in which international trade lead to increases in productivity for a firm or industry.
Social Welfare: A social planner has decided to allocate income between two people so as to maximize the sum of utilities of persons 1 and 2 (W = U1 + U2). Determine the marginal rate of transformation of person 1’s income into person’s 2’s income, i..
Many goods and services are illegally sold or legally sold but not reported to the government. How would increased efforts to count those goods and services affect our calculation of GDP?
Engineers at a national research laboratory built a prototype automobile that could be driven 180 miles on a single gallon of gasoline. They estimated that in mass production the car would cost $40,000 per unit to build. The engineers argued that Con..
At the end of the third quarter of 2015, the money supply in the U.S. was $2 trillion. That is, the available currency and deposits in the U.S. during July, August, and September 2015 was two trillion dollars. During the fourth quarter of 2015, the F..
What are price floors and price ceilings? How could a business maintain its level of profitability if forced to accept price ceilings? Use a business in your response. For example, a coffee shop could ... Please do not use a coffee shop in your examp..
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