Question

- Show what happens to the firm’s optimal level of capital after a decrease in productivity. Sketch the impact on the investment demand curve.

Answer #1

**Answer:**

*We know the relationship between capital and profuctivity
i.e., as capital invested reduces, the productivity of labour also
reduces.*

Hence, in this question we can assume that **a decrease in
productivity leads to a decrease in firm's optimum level of
capital.**

*Also this leads to a rise in nominal interest rate of
investment.*

**A graphical representation is provided below
?**

Suppose that the cost of renting capital
increases. What happens to the profit maximizing amount
of labor chosen by the firm? Show using the firm’s
optimal choice of labor graph.

Consider a firm’s initial optimal employment level in the short
run. Suddenly a positive technology shock occurs such that EVERY
employee is now able to produce an additional 15 units of output
above what they were originally able to produce. What happens to
employment at this firm:
Do employment levels increase, decrease, or stay the same?
EXPLAIN YOUR ANSWER. NO POINTS will be given if you do not
EXPLAIN your choice.

What happens to a firm’s marginal cost
of capital as it expands in an illiquid market? How can it overcome
these difficulties?

Macroeconomics:
Equate the marginal cost and marginal benefit of additional
investment to find the optimal level of capital for the second
period as a function of productivity, the de- preciation rate and
the interest rate. Use the numbers for R, d and productivity to
calculate the second period level of output and profits.
I'm a little confused because I thought when we equate MC(I) AND
MB(I) we get the optimal level of investment??

Problem 21-05
Given the following, determine the firm’s optimal capital
structure:
Debt/Assets
After-Tax Cost of Debt
Cost of Equity
0
%
6
%
13
%
10
6
13
20
7
13
30
7
13
40
9
14
50
10
15
60
12
16
Round your answers for capital structure to the nearest whole
number and for the cost of capital to one decimal place.
The optimal capital structure: _______ % debt and ______% equity
with a cost of capital of...

Use the bond supply and bond demand curves to show the impact of
a decrease in wealth on bond prices and market interest rate. You
need to show the work you do on your graph, including the original
bond price and the price after the decrease in wealth. If you do a
curve shift, you need to explain the reason for the shift.

1. A higher savings rate that leads to an increase in the
capital stock
leads to increases in labor productivity.
is associated with a decrease in the rate of growth of the
population.
immediately decreases investment.
leads to higher interest rates.
2. Factors that influence labor productivity include
________.
physical capital, human capital, and technology
the inflation rate, the real wage rate, and the exchange
rate
physical capital, the real wage rate, and technology
the labor demand curve
3. The...

Answer the following questions about the effects of
total factor productivity shocks:
1. Imagine a decrease in total factor productivity (z) happens.
We want to explain the effects of this in the labor, asset, and
money markets. Determine the effects this shock will have on
output, investment, consumption, employment, real wage, real
interest rates, average labor productivity, and the price
level.
2. Do these movements in part 1 correspond to the actual
movement of economic variables during business cycles? In...

what is the optimal capital structure for a company and
what is the impact it has on corporate value

Using Grossman’s pure investment model of the demand for
health, consider the impact of the following on the marginal
efficiency of investment (MEI) and related optimal health stock
(include a graph in your explanation):
Rather than having stopped school with a high school diploma,
by age 22 Poppy obtained an undergraduate degree in public health.
How would this education decision impact her optimal level of
health?
Suppose that after age 22 her wage rate stayed the same, what
happens to...

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