What is the effect on the capital labor ratio of an increase

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Reference no: EM131204001

If a consumer has preferences U = x₁x₂ over the steady-state levels of consumption in the two periods of life, show that the utility-maximizing choices satisfy x₂/x₁ = 1 + r. Use this result to calculate the capital-labor ratio in the steady-state equilibrium given the consumption possibility frontier from exercise 19.4. What is the effect on the capital labor ratio of an increase in n and α? Explain.

Exercise 19.4

Why might the purchase of capital (instead of the rental of capital) affect a firm's profit maximization decision?

Reference no: EM131204001

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