ASSIGMENT 7:Ex. 8, 9, 10.

8.

as No credit
constraints. Would the firm undertake the investment projects?

q
AB1
= Bis
+

> 1, for undertake.

DK

P1

PROJECT A
1500
3000 + 1.11 x 1, the firm will undertake this
9A (1,05) project.
=
so
=

200

20

B
PROJECT

5460
9B 4000 2.321, so the firm will also undertake this project.
705
= +
-

200

20

b)There are equidityconstraintsafirmscan'tband in the

financial marketin

II =

(9 1,")
+
-

PROJECT
A

B0/P1 10,000/20 500, FIRM

=
=

will undertake project A

500>200
(AK)

B
PROJECT

B0/Px =
1.000 (20 50 =
 7
507200 - Firm will not undertake B.
project
(DK)

C) Suppose Bo for A are 0. Would the firm undertake the investment project
When it faces liquidity constraint?

If Bo 0 in project A, the firm will not undertake project Aunder liquidity constraint
=

Bo <AK

di

9.2 periods, K and I demand

optimally. The firm uses two durable factors CK, KY and labor (
Profits in the 1st
period are
given by:

a) Obtain the Focs of the optimization problem. Explain the differences and
similalities by. The 3 production factors.

max 4
Pi
=

is)-is-s. -
1 655)
+

LAGANGRIAN FNC:

I P, F
= -

W, 0
=
Wi P, E
=
 8
·

PaF+- (1 i)
+
1) - e

= -Pr-.P +
=

demand
b) obtain the fact of K2, K2, 14 and 54. Give and
intuition
for this fue if a
11B 0
=
=

c) G 1, =
B> 0

did 2,B>0=
10. When the value of Tobinís
i q is high, it means that the stock market believes that
the capital is overvalued and that, therefore, the investment should be lower. Do
you agree with the previous statement?
STATEMENT

if
I is high up the stock marketbelieves Kis overvaluated, is
so I lower.

DISAGREE According a theory, I I (q 1) IO,

·
to Tobin's so if
I is higher, will
I
=
-
,

be higher.