ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Suppose the production function takes the form
F(K, L) =
The capital share is equal to:
ⒸĀK
13
L
L+K
ĀK
K+L
ĀKL
K+L
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Transcribed Image Text:Suppose the production function takes the form F(K, L) = The capital share is equal to: ⒸĀK 13 L L+K ĀK K+L ĀKL K+L
Suppose you have $100 to invest. You can hold it in
cash, you can deposit it in some savings account that
pays a nominal interest rate of 0.5%, or you can
invest in physical capital. The real rate of return on
capital is 1%. The inflation rate is -1%. The three
options are risk free. The optimal decision is to:
hold some cash and invest the rest in capital
invest the $100 in physical capital
deposit the $100 in the savings account
hold the 100$ in cash
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Transcribed Image Text:Suppose you have $100 to invest. You can hold it in cash, you can deposit it in some savings account that pays a nominal interest rate of 0.5%, or you can invest in physical capital. The real rate of return on capital is 1%. The inflation rate is -1%. The three options are risk free. The optimal decision is to: hold some cash and invest the rest in capital invest the $100 in physical capital deposit the $100 in the savings account hold the 100$ in cash
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