Econ501aH4ansS07

Econ501aH4ansS07 - The Ohio State University Department of...

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The Ohio State University Department of Economics Econ 501.02 Prof. James Peck Homework #4 Answers 1. Chapter 12, questions for discussion 3. Since you are already com- mitted to the leasing contract, the equipment is a f xed input. Even though the price paid for the equipment can F uctuate, you are committed to paying for the equipment no matter how much output you produce. If the prime rate increases, your cost of capital increases, but the amount you must pay for the capital does not depend on how much output you produce. Therefore, the change in the rental rate should not a f ect your output decision, so you should not have reduced your production rate. (Note: my answer implicitly assumes that all of the f rm’s capital is covered by the leasing contract, and that it is not possible for the f rm to "sublet" some of the equipment to another f rm. Otherwise, the capital input would not be f xed.) 2. (a) The production function is x =32 K 1 / 4 L 3 / 4 , and we have w =3 ,r =1 , and
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This note was uploaded on 07/17/2008 for the course ECON 501.02 taught by Professor Yang during the Spring '08 term at Ohio State.

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Econ501aH4ansS07 - The Ohio State University Department of...

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