Investment decision in a two-period model Assume a two-period economy. The firms periodic profits are given by = Y wN I = Y wN + (1 d)K Firm maximizes the present value of its profits + 1 + r Suppose that the capital remaining after the second period production can be sold at price 1. Solve the optimal investment rule. The capital evolves according to K = (1 d)K + I hint: Maximize the profits with respect to K

Investment decision in a two-period model Assume a two-period economy. The firm's periodic profits are given by 7T = Y WN - 1 = Y' W'N' + (1 - d)K' Firm maximizes the present value of it's profits + 1+r Suppose that the capital remaining after the second period production can be sold at price 1. Solve the optimal investment rule. The capital evolves according to K' = (1 - d)K+1 hint: Maximize the profits with respect to K' Investment decision in a two-period model Assume a two-period economy. The firm's periodic profits are given by 7T = Y WN - 1 = Y' W'N' + (1 - d)K' Firm maximizes the present value of it's profits + 1+r Suppose that the capital remaining after the second period production can be sold at price 1. Solve the optimal investment rule. The capital evolves according to K' = (1 - d)K+1 hint: Maximize the profits with respect to K