Question

suppose that the capital stock is €200 billion, the labour force is 2m workers, the depreciation rate is 10% and the labour force is growing at 2% each year. Calculate the required breakeven level of investment per worker. show all calculations

Answer 1

Consider the given problem here the capital is given by, “200 billion” and the labor force is given by “L=2 million”, => the “capital stock per worker” is given by.

=> K/L = 200 billion/2 million = 200*1,000,000,000/2*1,000,000 = 200*1,000/2 = 100,000.

=> k = 100,000 = capital per worker.

Now, the depreciation rate and the population growth are given by, “d=10%=0.1” and “n=2%=0.02”, => the breakeven level of investment per worker is given by, “(n+d)*k”.

=> (n+d)*k = 0.12*k = 0.12*100,000 = 12,000, => the breakeven level of investment per worker is given by, “i = 12,000”.