Essay
A firm's output (Y)depends on how much capital (K)it has,according to the equation: Y = 20K - K2.The real interest rate is 6% per year,the depreciation rate of capital is 14% per year and the price of a unit of capital is $80,and each unit of output sells for $1.
(a)For capital levels of 0 to 6,how much is output?
(b)For capital levels from 1 to 6,calculate the marginal product of capital.
(c)How many units of capital does the firm desire?
(d)If the real interest rate was 1% per year,how many units of capital would the firm desire?
Correct Answer:
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(a)& (b)
(c)uc = (r + d)pK = (0.06 + 0.1...View Answer
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Correct Answer:
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(c)uc = (r + d)pK = (0.06 + 0.1...
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