With labor held constant, Y=F(K)=K0.5, 400 units of capital, and the fraction of output invested in new capital at 0.2 (investment rate), and a depreciation rate is 0.05, what is the steady state amount of capital?:
A) 16
B) 64
C) 100
D) 225
Answer: A) 16
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Draw a long-run average cost curve that first exhibits increasing returns to scale (economies of scale), then constant returns to scale, and finally decreasing returns to scale (diseconomies of scale). Label each region.
What will be an ideal response?
Continuing with the same family from the preceding question, suppose a risk neutral insurance company exists to provide vacation insurance. Suppose further that each vacation day requires a constant expenditure, and this expenditure is standard across everybody. This allows us to simplify the problem by considering all payments to be in terms of vacation days. What is the least the insurance
company would charge (in terms of vacation days)? a. 3 b. 4 c. 5 d. 6
Parties to the contract prefer to keep the actual agreement incomplete when:
a. they have conflicting terms and conditions. b. they are large in count. c. the economic value of the contract is low. d. the cost of negotiation is high.
The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:
A. marginal product of the third worker is 9. B. the third worker has to work with poorer-quality tools and raw materials. C. the firm will not want to hire more than three workers. D. the first worker puts forth more effort than the second and third workers.