ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

# And only state all assumptions answer by definition

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Unformatted text preview: erms of ( ) and show all calculations. and only. State all assumptions Answer By definition: () ( ) Now observe that: () () () () () () () () () () () () () () 64 ECO 204 Chapter 12: Practice Problems &amp; Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Thus: () ( () But () ) () so that: () () () Let’s confirm this is correct by computing the value of capital at () () () () and () () () (c) Derive an expression for ( ), the user cost of capital in period , in terms of ( ) ( ) assumptions and show all calculations. and only. State all Answer The user cost of capital is: () Now () and ( ) () () () () () so that: () () () () ( ){ ( ) () () (d) “The price of (owned) capital () () () () } ( ) ( ){ } ( ) ( )( ) ( ) falls over time”: True or false? State all assumptions and show all calculations. Answer The user cost of capital is: () () () () Since ( ) , we see that ( ) so that, all things equal, ( ) will fall over time. However, ( ) can rise, remain constant, or fall over time so that it is possible that ( ) remains constant or falls over time. [Optional] More precisely: 65 ECO 204 Chapter 12: Practice Problems &amp; Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. () () () () () } ( ){ ( ) () () () ( ) Now: () () () {() () () () } () () () () ( ) The price of capital will rise over time when: () () () () () ( ) () () () () ( )[ () () () () () () ( ) () () () () () Here is the growth rate of the opportunity cost rate of return. Thus, so long as the growth rate is greater (equal to, less than) than , the price of capital will rise (remain constant, fall) over time. (12.15) A company uses labor ( ), capital ( ) and materials ( ) to produce output ( ). The production function is: Suppose capital is fixe...
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