In an economy the interest rate is 5% and the depreciation rate is 20%. The price of capital is 1. A firm has the following production function Y=AK05N0.5 a. Find the marginal cost of capital b. Compute the investment desired by the firm, knowing that A=2, K=8, N=1. c. If the economy is a close economy, what is the amount of national savings? Instead, what if this was an open economy? Explain. d. If the government imposes a tax on firm revenues of 25%, how does the investment desired change? Compute it and show what happens in the Investment-Savings diagram, assuming this is an open economy and the government completely waste the revenues of this tax.
In an economy the interest rate is 5% and the depreciation rate is 20%. The price of capital is 1. A firm has the following production function Y=AK05N0.5 a. Find the marginal cost of capital b. Compute the investment desired by the firm, knowing that A=2, K=8, N=1. c. If the economy is a close economy, what is the amount of national savings? Instead, what if this was an open economy? Explain. d. If the government imposes a tax on firm revenues of 25%, how does the investment desired change? Compute it and show what happens in the Investment-Savings diagram, assuming this is an open economy and the government completely waste the revenues of this tax.
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter14: Investment, The Capital Market, And The Wealth Of Nations
Section: Chapter Questions
Problem 2CQ
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