With the model given in the image answer the 3 questions (2 given in the image). Please answer all three the three questions 38, 39 and 40. Q40. If, at the end of the initial time period, the households were given a choice to spend their savings in buying more land instead of investing in capital stock.A. both households would have bought more landB. both households would have still invested in capitalC. Household R would have still invested in capital but household P would have bought more landD. Household P would have still invested in capital but household R would have bought more land(PS: Note that rich and poor can choose one of the two technologies; technology A or B. Obviously Rich will use Technology A and poor will use Technology B.) The next 4 questions pertain to the following: Consider an agrarian economy with twosingle membered households. The households are engaged in own cultivation using theirfamily land, labour and capital. Each household is endowed with 1 acre of land and 1 unitof labour. However the two households differ in terms of their initial capital endowment(K and K), where R denotes the relatively richer household and P denotes the relativelypoorer household. Assume 2 < K < 4 and 0 < K < 1. The household have access totwo technologies which are specified by the following production functions: Technology A:(N,L) (K,)² Technology B: Y, = (N,L) (K,)² where N, represents land(in acres),Lt represents labour, and Kt represents capital respectively. The households choose thetechnology which gives them higher output (given their land, labour and capital stock) inany period t. In every period they consume half of their total income and save the rest,which adds to the next period's capital stock. Land and labour stock remain constant overtime. Existing capital stock depreciates fully upon production. 38. In the short run, the average capital stock in the economy (K) evolves according to thefollowing dynamic pathA. = ((K#)} + (K?)° – 2(K# + K#)]dtВ. ЖB. = 1 [(K#)? +(KP)² – 2(K² + K?)]C. = | (K#)} + (K?)} – 2(K"' + KP)|dtD. = (K#)? +(K?)i – 2(K# + K?)dt39. In the long run:A. income of both households grow perpetuallyB. income of household R grows perpetually but that of household P approachesa constantC. income of household P grows perpetually but that of household R approachesa constantD. income of household R grows perpetually but that of household P falls per-petually

Capital stock refers to the total quantity of physical capital available in an economy at a specific…

Answered: With the model given in the image…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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With the model given in the image answer the 3 questions (2 given in the image). Please answer all three the three questions 38, 39 and 40.

Q40. If, at the end of the initial time period, the households were given a choice to spend their savings in buying more land instead of investing in capital stock.

A. both households would have bought more land

B. both households would have still invested in capital

C. Household R would have still invested in capital but household P would have bought more land

D. Household P would have still invested in capital but household R would have bought more land

(PS: Note that rich and poor can choose one of the two technologies; technology A or B. Obviously Rich will use Technology A and poor will use Technology B.)

The next 4 questions pertain to the following: Consider an agrarian economy with two
single membered households. The households are engaged in own cultivation using their
family land, labour and capital. Each household is endowed with 1 acre of land and 1 unit
of labour. However the two households differ in terms of their initial capital endowment
(K and K), where R denotes the relatively richer household and P denotes the relatively
poorer household. Assume 2 < K < 4 and 0 < K < 1. The household have access to
two technologies which are specified by the following production functions: Technology A:
(N,L) (K,)² Technology B: Y, = (N,L) (K,)² where N, represents land(in acres),
Lt represents labour, and Kt represents capital respectively. The households choose the
technology which gives them higher output (given their land, labour and capital stock) in
any period t. In every period they consume half of their total income and save the rest,
which adds to the next period's capital stock. Land and labour stock remain constant over
time. Existing capital stock depreciates fully upon production.

38. In the short run, the average capital stock in the economy (K) evolves according to the
following dynamic path
A. = ((K#)} + (K?)° – 2(K# + K#)]
dt
В. Ж
B. = 1 [(K#)? +(KP)² – 2(K² + K?)]
C. = | (K#)} + (K?)} – 2(K"' + KP)|
dt
D. = (K#)? +(K?)i – 2(K# + K?)
dt
39. In the long run:
A. income of both households grow perpetually
B. income of household R grows perpetually but that of household P approaches
a constant
C. income of household P grows perpetually but that of household R approaches
a constant
D. income of household R grows perpetually but that of household P falls per-
petually

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