Equilibrium market prices for capital and labor are $10 and $8, respectively. Then, the economy experiences one or more supply shocks, so that the marginal product of capital is $12, and the marginal product of labor is $9
Assuming that the available quantities of capital and labor are fixed, which of the following is (are) likely to decrease as the economy approaches its new equilibrium? A) real rental price of capital
B) total output
C) economic profits
D) the quantity of capital in use
E) none of the above
C
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If production of a good produces an external benefit, in order for the marginal social cost to equal the marginal social benefit
A) the good should be taxed. B) permits should be required to purchase the good. C) the good could be subsidized. D) the government needs to take no action.
The production function is concave in capital because
A) the contribution to production of each additional unit of capital decreases. B) the marginal product of capital is increasing. C) the marginal product of labor is decreasing. D) the cost of loans increases with their quantity.