Suppose, in the Solow growth model, that learning by doing is captured as a cost of installing new capital. In particular, suppose that for each unit of investment, r units of goods are used up as a cost to firms.
(a) Determine how r affects the steady state quantity of capita per worker, and per capita income.
(b) Now suppose that r differs across countries. How will these countries differ in the long run? Discuss.
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