Suppose that the firm produces output only from capital. Current output is given by Y = zK
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Suppose that the firm produces output only from capital. Current output is given by Y = zKα, and future output is given by Y′ = z′(K′)α, where 0 < α < 1. Determine investment for the firm, and show how investment depends on the real interest rate, future total factor productivity, the depreciation rate, and α. Explain your results.
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Dudhat Vaidehi
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