(a) If the interest rate differs across agents, who will value firms more, the one that face higher or the ones that face a lower rate, and why? Provide a numerical example. (b) Suppose the firms in the economy produce according to the production process described by the function az−z2, where the parameter a takes different values. If the interest rate is given by r q, which value the parameter a has to take for firms to be active? (c) Suppose that the central bank has control over r q and decides to lower the rate. Will more firms enter the market or firms will quit the market and why? Accordingly, will the optimal input z increase or decrease?

(a) If the interest rate differs across agents, who will value firms more, the one that face higher or the ones that face a lower rate, and why? Provide a numerical example. (b) Suppose the firms in the economy produce according to the production process described by the function az−z2, where the parameter a takes different values. If the interest rate is given by r q, which value the parameter a has to take for firms to be active? (c) Suppose that the central bank has control over r q and decides to lower the rate. Will more firms enter the market or firms will quit the market and why? Accordingly, will the optimal input z increase or decrease?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter2: Mathematics For Microeconomics

Section: Chapter Questions

Problem 2.6P

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