How much gasoline will you produce

Reference no: EM133380717

Questions: Suppose that your production function is given by ?f ,k) = 3030415", F = 1,080 and the weekly city-wide demand for gallons of gasoline is x(p) = 100,040 - 1,000p. Furthermore, suppose that the wage is w = 15 and the current rental rate is 32.1568. Gasoline prices are typically in terms of tenths of cents, so express your answer accordingly.

a. Suppose the industry is in long-run equilibrium in the absence of capital gains taxes. Assuming that you can hire fractions of hours of capital and produce fractions of gallons of gasoline, how much gasoline will you produce and at what price do you sell your gasoline? (Use the cost function derived for Cobb-Douglas technologies given in equation (13.43) in exercise 13.5 (and remember to add the ?xed cost).)

b. How many gasoline stations are there in your city? Now suppose the govemment's capital gains tax increases the rental rate of capital by 24.39% to $40. How will your sales of gasoline be affected in the new long-run equilibrium? (1. What is the new price of gasoline? Will you change the number of workers you hire? How about the hours of capital you rent?

Reference no: EM133380717

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