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Suppose that an economy’s production function is cob-douglass with CRS(Y=AK^α * L^1-α ) and α=.3

a. What fractions of income do capital and labor receive?

b. Suppose that labor force increases by 15 percent. How much does output increase or decrease by in percentage terms? The rental price of capital? The real wage?

c. Suppose that the capital stock decreases by 15 percent. How much does output increase or decrease by in percentage terms? The rental price of capital? The real wage?

d. Suppose that a technological advance raises the value of the parameter A by 15 percent. How much does output increase or decrease by in percentage terms? The rental price of capital? The real wage?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91423838

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