1 E, F e. A firm in a given industry has an incentive to use the new technology if and only if theexpected profits from adopting this technology are positive.i-Derive the condition under which no firm has an incentive to adopt the newtechnology when n=0.ii- Derive the condition under which firm has an incentive to adopt the newtechnology when n=1.f- Is it possible that these two equilibrium conditions are satisfied simultaneously? Whichparameter is critical for this to be the case?g- Provide an example of a modern technology whose implementation, or the lack of itsimplementation, could be explained by this model.2- Consequence of an Immigration BoomConsider an economy that is initially in a balance growth path. Assume that there is animmigration boom starting in period to that last until period t₁, t₁ > to. As a consequenceof the immigration boom, the growth rate of the population is temporarily higher, n' > nfor to < t < t₁, and reverts back to the initial value n after that, i.e., for t > t₁. Analyzethe short and long-run implications of the immigration boom for the dynamics oftechnology, capital and output per-capita.To answer this question, use a graphical analysis of the model of endogenous technologicalprogress described by the following equations: À(t)/A(t) = 0(SrL(t)/A(t))¹- andk(t)/k(t) = Sk(k(t)/A(t))ª−¹(1 − Sr)¹−¤ − (d + n). 1- Complementaritiesand IndustrializationConsider the following variation of the model of industrialization and coordinationfailures by Murphy, Shleifer and Vishny (1989) discussed in lectures 8.Consumers: The economy is populated by N consumers, each of them demanding Ndifferent goods. Individuals expend a constant fraction, 1/N, of their income in eachof the N goods.Traditional Firms: In each sector, there are a large number of firms that can produceusing a traditional technology. Using the traditional technology, 1 unit of labor can beused to produce 1 unit of the good, qold-1. Notice that the price of the good could neverexceed the wage w (why?). Therefore, traditional firms will earn zero profits.Modern Firms: In each sector, there is a potential firm that must decide whether to use amodern technology. To use the modern technology a firm must purchase yF/N units ofthe goods produced by each of the N industries (including itself) and hire (1-y)F units oflabor, so that the total fixed cost is equal to F. If the modern technology is adopted by agiven firms in a sector, this firm produces using a superior technology that transform 1unit of labor into a units of the good, qmodern=a*1, where a>1.Labor Market: Traditional and modern firms compete in the same labor market, andtherefore, they must pay the same wage. Wages paid by traditional and modern firms isnormalized to 1, wold- wmodern =1.a. Suppose that the expected sales in each industry are equal to q. Derive an expressionforTT, the expected profits of using the new technology as a function of F, q, a.b. The income per capita in this economy, y, is the sum of per capita labor income as wellas the profit income from the firms adopting the modern technology. Derive anexpression for y in terms of n, à and where n is the fraction of sectors using the moderntechnology.c. The expected sales of each industry, q, are the sum of the demand from consumers andthe demand from modern firms. The demand from modern firms is equal to nyF, the totalpurchases by firms adopting the new technology. Therefore, the expected sales of anindustry areq=y+nyFUsing this equation and your answer to a-b, derive an equation relating y with n, a, y andF. Solve for y in terms of n, a, y and F.d. Combining a-c, derive an expression for a in terms of n, a, y and F.

Industrial economics is a branch of economics in which industrial matters are analyzed with the help…

e. A firm in a given industry has an incentive to use the new technology if and only if the expected profits from adopting this technology are positive. i- Derive the condition under which no firm has an incentive to adopt the new technology when n=0. ii-Derive the condition under which firm has an incentive to adopt the new technology when n=1. f- Is it possible that these two equilibrium conditions are satisfied simultaneously? Which parameter is critical for this to be the case? g- Provide an example of a modern technology whose implementation, or the lack of its implementation, could be explained by this model. 2- Consequence of an Immigration Boom Consider an economy that is initially in a balance growth path. Assume that there is an immigration boom starting in period to that last until period t₁, t₁ > to. As a consequence of the immigration boom, the growth rate of the population is temporarily higher, n' > n for to t₁. Analyze the short and long-run implications of the immigration boom for the dynamics of technology, capital and output per-capita. To answer this question, use a graphical analysis of the model of endogenous technological progress described by the following equations: À(t)/A(t) = 0(S¸L(t)/A(t))¹-¢ and k(t)/k(t) = sk(k(t)/A(t))ª¯¹(1 − SR)¹-a — (d+n).

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter10: Strategy: The Quest To Keep Profit From Eroding

Section: Chapter Questions

Problem 10.3IP