Investment. Consider now the firms' side of this economy. Suppose the marginal product from em- ploying...

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Investment. Consider now the firms' side of this economy. Suppose the marginal product from em- ploying an extra unit of capital are captured by MPK further that the depreciation rate of capital is 8 = aSka-1 where S = 1; a 0.06, and the interest rate is 1+r. 0.3. Assume • show first graphically (without using numbers or calculations) the investment decision of the firm. How is capitalk determined? • compute the capital decision when the interest rate is as you computed for economy 1 in the previous question. • compute the capital decision when the interest rate changes to what you found in economy 2. What happens to investment as the interest rate changes? Show graphically and numerically and discuss briefly your findings Investment. Consider now the firms' side of this economy. Suppose the marginal product from em- ploying an extra unit of capital are captured by MPK further that the depreciation rate of capital is 8 = aSka-1 where S = 1; a 0.06, and the interest rate is 1+r. 0.3. Assume • show first graphically (without using numbers or calculations) the investment decision of the firm. How is capitalk determined? • compute the capital decision when the interest rate is as you computed for economy 1 in the previous question. • compute the capital decision when the interest rate changes to what you found in economy 2. What happens to investment as the interest rate changes? Show graphically and numerically and discuss briefly your findings

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