(b) Will the firm encounter any problem, if the firm charges a price P equal to marginal cost? Explain your logic.

(c)  Explain the extent you agree with this statement: Ricardian equivalence shows that government deficits do not matter.

i. Can the real interest rate be negative? Why?

ii. Can the nominal interest rate be negative? Why?

(a) Find the cost function, C(Y), that tells the minimum cost required to produce Y units of output.

3.  In most endogenous growth models, allowing a monopolist to caplure no- nopolistic proft plays an important role in boosting innovation. Consider a monopolict facing a linear demand function: Q = a - 6P, and the marginal cost is constant at c. Parameters a, b, and c are positive constants with a - bc ＞ 0. Find the ratio of monopolistic proft to the total potential consumer surplus available if the good were priced at marginal cost.

(a) Express the aggregate capital evolution equation.

(b) Express the capital evolution equation in terms of i: = :y and the model parameters. State the necessary assumption for this derivation.

(c)  Draw a graph to show that this ecomomy will reach a long run equilib- rium with a constant .. State the necessary assumptions to have this long run equilibrium. Provide the economic meanings of your assumptions.

(a)  Express the aggregate capital evolution equation.

(b) Express the capital evolution equation in terms of and the model parameters. State the necessary assumption for this derivation.