Investment

Question 1

PV of profits

Answer 1

V = Y − wN − I +( 1/ 1 + r) (Y’ − w’N’+ (1 − d)K’)

Question 2

FOC’s of PV of profits

Answer 2

MPn = w
MPn’=w’
MPk’ - d = r

Question 3

Effect of an increase in current and future TFP

Answer 3

Current: Shift labour demand right
Future: Increase demand for investment