Unformatted text preview: calculations. (b) What is the internal rate oF return? (c) Now suppose that he is also a great Football player. However, it is a risky sport, and at most he can play until the age oF 30. The contract that he can get is a million dollars a year. What should he do? Show your calculations 4. (30 points) Consider the wellknown Cobb Douglas Production Function we studied in class: Q = AK α L 1 − α , where Q is the level oF output, K is level oF capital, L is the level oF working hours, α ∈ (0 , 1)and A is a productivity parameter. Imagine that this production Function represents the aggregate production oF the US economy. (a) Consider the price oF fnal output to be 1. Show the implications For wage w and return to capital r iF there is in²ux oF immigrants to the economy. What would happen to the labor share oF output? (b) Repeat the same exercise with a CES production Function, ie. Q ( K,L ) = ( αK ρ + (1 − α ) L ρ ) 1 /ρ 1...
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 Spring '11
 erick
 Economics, matlab, Net Present Value

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