Compute an example of the effects of rate-of-return regulati
Question and Solution
Compute an example of the effects of rate-of-return regulation (similar to Table 20.3) where the production function is
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Compute an example of the effects of rate-of-return regulation (similar to Table 20.3) where the production function is Leontief: Q =min(L, K ) and labor and capital cost are the same. (This production function implies that efficient production involves equal amounts of labor and capital. It takes 1 unit of each to produce 1 unit of output, and 2 units of each to produce 2 units of output.) What effect does rate-of-return regulation have on output, profits, consumer surplus, and capital/labor ratio? [Note: This question can be answered without using mathematical analysis or calculating a table.]
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