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Describing the impact of fiscal stimulus on aggregate demand, tradeoff between fiscal stimulus and inflation.

A firm has the following production function: Q=E1/4 3K1/2

The price of output is $10, the wage rate is $4, and the rental rate for capital is $2 per unit. Assume capital is a fixed cost at 5 units.

a. Computing the short-run profit maximizing level of labor and capital demand.

b. Computing the long-run profit maximizing level of labor and capital demand.

c. The rental rate of capital changes to $10, show which effect is stronger, the substitution or scale.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M922169

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