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Posted on Jul 09, 2024

In the two-period model of investment the production function is given by Q=9K(2/3) . The initial capital stock is K1=110. The interest rate is 20%.

a) What is the optimal amount of investment if capital depreciates 100 percent per year?

b) How would your answer to a) change if capital depreciated by 10 percent per year?

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