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# Neoclassical model

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Let me first clarify the issues to you do not understand. The Neo classical model of the firm is also called the profit maximizing model. This model makes three assumptions. First, there is perfect certainty, meaning cost and demand conditions are known. Second, the firm is a single entity with objectives of its own and which makes decisions. Third, the firm maximizes a profit that is can make as much profits as it wants.
This is contrasted with the 'other' model or the behavioral/managerial model it makes the assumption that organizations do not have objectives, only people do have objectives. Also the model assumes that the firm does not exist, only a set of shifting coalitions of individuals exist. The groups of individuals do not maximize, they only satisfice. Finally, information about the environment is very limited. In other words it is not easy to predict costs and revenues.

Does a firm know its costs before it knows its revenues? What is the ideal relation between knowledge of costs and knowledge of revenues? Suggest ways in which a firm can obtain the ideal relation.
Not all costs, the sunk costs are known beforehand, however, the costs both variable and fixed costs tend to change and may change before the ...

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## Neoclassical model & Growth Accounting Equation

See the attachment for the full question.

5. (see attachment for the growth accounting equation)
Growth rates of K (capital) and N (labor) are weighted by their respective income shares, so that each input contributes an amount equal to the product of the input's growth rate and their share of income to output growth. The Δ indicates the change in the variable.

(a) The steady state equilibrium for the economy is the combination of per capita GDP and per capita capital (k) where the economy will remain at rest, or where per capita economic variables are no longer changing OR (see attachment for equation)

(b) Explain why, in the Neoclassical growth model, an increase in the savings rate does not increase the growth rate of per capita output in the long run.

(c) Explain why:

(1) An increase in the rate of growth of the population, n, reduces the steady state level of k and y

(2) An increase in n increases the steady state rate of growth of aggregate output
and;

(1) A decrease in n increases the steady state level of k and y
(2) A decrease in n decreases the steady state rate of growth of aggregate output.

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