Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 3E
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Question
please help solve this question
![(a) Define alcompetitive equilibrium for this economy.
(b) Derive the production possibilities frontier and explain what its slope captures.
(c) Show the competitive equilibrium on a carefully labeled graph, and explain what
condition holds at that equilibrium.
(d) Assuming that the economy is initially in equilibrium, suppose that there is a natural
disaster that destroys half of the economy's capital stock. What will be the effects
of this disaster on aggregate output, consumption, employment, and the real wage?
Explain your results.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F06207e20-a3f2-4f4e-b190-212fd3381778%2Fd44f8023-c6d8-4fae-bc17-891524796d25%2Ffgizznt_processed.png&w=3840&q=75)
Transcribed Image Text:(a) Define alcompetitive equilibrium for this economy.
(b) Derive the production possibilities frontier and explain what its slope captures.
(c) Show the competitive equilibrium on a carefully labeled graph, and explain what
condition holds at that equilibrium.
(d) Assuming that the economy is initially in equilibrium, suppose that there is a natural
disaster that destroys half of the economy's capital stock. What will be the effects
of this disaster on aggregate output, consumption, employment, and the real wage?
Explain your results.
![6. Consider an economy that consists of consumers, firms, and a government. The rep-
resentative consumer has preferences over bundles of consumption goods c, and leisure
', satisfying the standard properties: more is preferred to less; preference for diversity;
normality. The consumer is endowed with an endowment of total hours h. The represen-
tative firm faces a constant returns to scale production function Y = zF(K, Nd), where
Y is output of consumption goods, z is TFP, K is physical capital, and Nd is labour
1
input. The amount of capital is assumed to be given and fixed. The firm is owned by the
household, and as a result any real firm profits will be distributed to the consumer in the
form of dividends, denoted II. The government purchases a quantity G of consumption
goods, and finances them by taxing the representative consumer lump-sum. Let T denote
real taxes, and assume that the government balances its budget. Let the real wage per
hour worked in terms of the consumption good be w.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F06207e20-a3f2-4f4e-b190-212fd3381778%2Fd44f8023-c6d8-4fae-bc17-891524796d25%2Fwshcndu_processed.png&w=3840&q=75)
Transcribed Image Text:6. Consider an economy that consists of consumers, firms, and a government. The rep-
resentative consumer has preferences over bundles of consumption goods c, and leisure
', satisfying the standard properties: more is preferred to less; preference for diversity;
normality. The consumer is endowed with an endowment of total hours h. The represen-
tative firm faces a constant returns to scale production function Y = zF(K, Nd), where
Y is output of consumption goods, z is TFP, K is physical capital, and Nd is labour
1
input. The amount of capital is assumed to be given and fixed. The firm is owned by the
household, and as a result any real firm profits will be distributed to the consumer in the
form of dividends, denoted II. The government purchases a quantity G of consumption
goods, and finances them by taxing the representative consumer lump-sum. Let T denote
real taxes, and assume that the government balances its budget. Let the real wage per
hour worked in terms of the consumption good be w.
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