Formally, q(t) plays the role of the Lagrange multiplier for the capital accumulation restriction. The economic interpretation
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Formally, q(t) plays the role of the Lagrange multiplier for the capital accumulation restriction. The economic interpretation of q(t) is straightforward. It can be shown that q(0) represents the shadow price of installed capital K(0). In words, q(0) measures by how much the value of the firm would rise (dV(0)) if the initial capital
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Related Book For
Foundations Of Modern Macroeconomics
ISBN: 9781264857937
1st Edition
Authors: Ben J. Heijdra, Frederick Van Der Ploeg
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