Question: Suppose that the production function is Y = AK1/2L1/2, where A = 1 and L = 100. Suppose further that the price of capital good

Suppose that the production function is Y = AK1/2L1/2, where A = 1 and L = 100. Suppose further that the price of capital good (Pk) is 10, the price of output (P ) is 4, the (annual) interest rate (r) is 0.1, and the (annual) depreciation rate () is 0.1.

Calculate for the optimal level of capital

Suppose we are currently at the optimal level of capital. How much investment per year is needed to maintain this level of capital?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related General Management Questions!

Assignment 1. A Walmart suppliers demand forecasting team estimates that the demand for jeans is on average 600 pairs per month with a standard deviation of 255 pairs. They assume that the demand is...

Suppose that the production function is Y = AK1/2L1/2, where A = 1 and L = 100. Suppose further that the price of capital good (Pk) is 10, the price of output (P ) is 4, the (annual) interest rate...

Question 1: Neoclassical model of investment Suppose that the production function is Y = AK^(1/2)L^(1/2), where A=1 and L=100. Suppose further that the price of capital good (Pk) is 5, the price of...

4. Consider the production functions given below: a. Suppose that the production function faced by a cheese producer is given by Q = 2K L, where M PK = 2L and MPL = 2K. i. Do both labor and capital...

Q#1 (40 marks) Suppose the firm's production function is given as Q = 10KL, where L is labor, K is capital. 1) Calculate the elasticity of substitution of this production function. (5marks ) 2) What...

HHello help me in my assignment. Question 3 [Marks: 25! (1.3.1 The monetary transmission mechanism can be depicted in the form of a graph [1D] or using symbols. Explain, with the aid of symbols, the...

Problem 1: The Solow Model [18 Points] Suppose that an economy has a labour force of 36 (L, = L = 36). Population growth is equal to zero (n =0), so L=36in all periods. Suppose also that this economy...

ASAP Problem 1: The Solow Model [18 Points] Suppose that an economy has a labour force of 36 (L. = L = 36). Population growth is equal to zero (n=0), soL=36in all periods. Suppose also that this...

Problem 1: The Solow Model [18 Points] Suppose that an economy has a labour force of 36 (L. = L = 36). Population growth is equal to zero (n=0), soL=36in all periods. Suppose also that this economy...

NOTE: All problem sets must be hand-written (not typed) to receive full credit. Typed answers will receive a zero. Round all answers that are decimals to two decimal places. Problem 1: The Solow...

20. Suppose that the production function for Alfred Barbuda, a producer of fine violins, is given by the following: Q = 10 K 0.5 L 0.5 . a. Suppose that Alfred is currently using 1 unit of capital....

Robin spent $17 at an amusement park for admission and rides. If she paid $5 for admission, and rides cost $3, what is the total number of rides that she went on?

In previous years, Cox Transport reacquired 2 million treasury shares at $12 per share and, later, 1 million treasury shares at $18 per share. By what amount will Coxs paid-in capitalshare repurchase...

Crowdfunding is ? Pick one When a crowd funds a project or business. A financial instrument like an IRA. A guaranteed source of income. Where bankers place your money.

The annual demand for an item is 1,700 units. The order cost is $7. Unit cost is $8 and the unit holding cost per year is 18% of the item's value. The order quantity is 125 units. What are the total...