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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Foundations Of Modern Macroeconomics

ISBN: 9781264857937

1st Edition

Authors: Ben J. Heijdra, Frederick Van Der Ploeg

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