Econ HW #2 - Kelly O'Boyle Economics 302 Section 302 1) a....

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Kelly O’Boyle Economics 302 Section 302 1) a. The firm’s profit function is Profit=Pf(K,L)–wL–RK P is held constant, w is held constant, and R is held constant. This is so that profit is a function of the price of output, factor prices, and factor quantities which depend on technology. b. If the labor income share in production is equal to 0.75, which equals 1- α , then α equals 0.25 c. (10*5)/2= 25 d. Based on the information and answers I have found above, and if the level of technology is 1, I find that the level of labor it zero, because in part c, I did not factor in any labor because I did not know how to factor it in if I was not already given either w or L. e. In a profit maximizing firm, P*MPL is equal to W, so in this example, that holds true. 2) a. Y=AK 0.4 L 0.6 C=250+0.7(Y-T) K=100 A=45 I=1650-16000r L=100 T=500 S G =-100 S P =Y-C-T Y=45(100) 0.4 (100) 0.6 Y=4,500 C=250+0.7(4500-500) C-3,050 S P =4500-3050-500 S P =950 S=950-100 S=$850 b. 850=1650-16000r r=5% I=1650-16000(0.05)
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Econ HW #2 - Kelly O'Boyle Economics 302 Section 302 1) a....

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