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# exam2004key - Exam ARE 263 Fall 2004 Answer all three...

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Exam ARE 263 Fall 2004 Answer all three questions. . Each question is worth the same number of points. (If you f nd yourself drowning in algebra and running out of time, step back and explain in words how you would proceed if there was no time pressure.) 1) This is a discrete time problem. A f rm rents capital at the unit price of p per period. The function π ( k ) is the f rm’s maximum level of pro f t during a period, exclusive of rent, conditional on the level of capital k (the restricted pro f t function). The f rm incurs an adjustment cost of changing the amount o fcap ita lthatitren ts . Thecostincurredinper iod t is c ( k t k t 1 ) ,w ith c (0) = 0 , c 0 (0) = 0 and c 00 ( k t k t 1 ) > 0 .T o t a l p r o f ts in a period equal π ( k t ) pk t c ( k t k t 1 )

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exam2004key - Exam ARE 263 Fall 2004 Answer all three...

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