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roduction Model Suppose that firms produce according to the following production function: Y = At(K)" (Lt) (N₂) ¹-a-B where A, captures productivity, K, capital, L, labor, and N, land available for business use. We can define wt as wages, rk as rental rates for capital, and r as rental rates for land usage. (a) Write down the firm's profit maximizing problem. Be sure to identify the vari- ables the firm can choose and which it takes as given.

roduction Model Suppose that firms produce according to the following production function: Y = At(K)" (Lt) (N₂) ¹-a-B where A, captures productivity, K, capital, L, labor, and N, land available for business use. We can define wt as wages, rk as rental rates for capital, and r as rental rates for land usage. (a) Write down the firm's profit maximizing problem. Be sure to identify the vari- ables the firm can choose and which it takes as given.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Problem 2: Production Model Suppose that firms produce according to the following production function: Y = At(K₂) (Lt) (N₁) ¹-a-B where At captures productivity, K, capital, L, labor, and N, land available for business use. We can define wt as wages, rk as rental rates for capital, and r as rental rates for land usage. (a) (b) Write down the firm's profit maximizing problem. Be sure to identify the vari- ables the firm can choose and which it takes as given. Are there increasing returns to labor (L)? Land (N)? Explain.
Transcribed Image Text:Problem 2: Production Model Suppose that firms produce according to the following production function: Y = At(K₂) (Lt) (N₁) ¹-a-B where At captures productivity, K, capital, L, labor, and N, land available for business use. We can define wt as wages, rk as rental rates for capital, and r as rental rates for land usage. (a) (b) Write down the firm's profit maximizing problem. Be sure to identify the vari- ables the firm can choose and which it takes as given. Are there increasing returns to labor (L)? Land (N)? Explain.
(c) The MP curve is typically given by R-F = m(t). How would this equation change if the Federal Reserve responded to deviations in inflation from its target and deviations in short-run output from its potential level? Explain. (d) In deriving the Phillips curve, if expected inflation were not equal to past infla- tion, what would be the form of this curve? Could we draw it in the same way? Explain. raw the IS-MP diagram. Suppose that there was a housing bubble in the economy that arst (think Great Recession). What would happen in the IS-MP diagram and corresponding Phillips curve? what would be the initial impact on the interest rate, short-run output, and inflation? Explain. Sycholl
Transcribed Image Text:(c) The MP curve is typically given by R-F = m(t). How would this equation change if the Federal Reserve responded to deviations in inflation from its target and deviations in short-run output from its potential level? Explain. (d) In deriving the Phillips curve, if expected inflation were not equal to past infla- tion, what would be the form of this curve? Could we draw it in the same way? Explain. raw the IS-MP diagram. Suppose that there was a housing bubble in the economy that arst (think Great Recession). What would happen in the IS-MP diagram and corresponding Phillips curve? what would be the initial impact on the interest rate, short-run output, and inflation? Explain. Sycholl
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