Question

Assume that a competitive economy can be described by a constant-returns-to-scale Cobb-Douglas production function and all...

  1. Assume that a competitive economy can be described by a constant-returns-to-scale Cobb-Douglas production function and all factors of production are fully employed. Holding other factors constant, including the quantity of capital and technology, carefully explain how a one-time, 10 percent increase in the quantity of labor as a result of a special immigration policy, will change the following: (12 points)
    1. The level of output produced
    2. The real wage of labor
    3. The real rental price of capital
    4. Labor share of total income

SHOW ALL WORK AND RATIONALE.

Homework Answers

Answer #1

a) As due to the diminishing returns to labor theory the output will increase at less than 10% with an increase in input which is labor.

b) The real wage of labor will decrease because the output increases at a decreasing rate so the average productivity of labor which is Y/L will fall which will result in fall in marginal productivity of labor.

c) The rental price of capital will increase as Y/K which is referred to as average productivity of capital is increasing because the output is rising but the capital is not. so Marginal productivity of capital will also increase.

d) Labor share of total income will not change as the parameter on which it depends does not change in the production function

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A? Cobb-Douglas production function A. exhibits constant returns to scale. B. exhibits decreasing returns to scale....
A? Cobb-Douglas production function A. exhibits constant returns to scale. B. exhibits decreasing returns to scale. C. exhibits increasing returns to scale. D. can exhibit? constant, increasing, or decreasing returns to scale.
(a) Show that the following Cobb-Douglas production function, f(K,L) = KαL1−α, has constant returns to scale....
(a) Show that the following Cobb-Douglas production function, f(K,L) = KαL1−α, has constant returns to scale. (b) Derive the marginal products of labor and capital. Show that you the MPL is decreasing on L and that the MPK is decreasing in K.
a) Show that the following Cobb-Douglas production function, f(K,L) = KαL1−α, has constant returns to scale....
a) Show that the following Cobb-Douglas production function, f(K,L) = KαL1−α, has constant returns to scale. (b) Derive the marginal products of labor and capital. Show that you the MPL is decreasing on L and that the MPK is decreasing in K.
Assuming a Cobb-Douglas production function with constant returns to scale, then, as L rises with K...
Assuming a Cobb-Douglas production function with constant returns to scale, then, as L rises with K and A constant, it will be the case Group of answer choices Both the marginal product of labour and the marginal product of capital will fall Both the marginal product of labour and the marginal product of capital will rise The marginal product of labour will rise and the marginal product of capital will fall The marginal product of labour will fall and the...
Assume a​ Cobb-Douglas production function of the​ form: q=10L0.09K0.47. What type of returns to scale LOADING......
Assume a​ Cobb-Douglas production function of the​ form: q=10L0.09K0.47. What type of returns to scale LOADING... does this production function​ exhibit? In this​ instance, returns to scale equal ?. ​ (Enter a numeric response using a real number rounded to two decimal​ places.)
Cobb-Douglas Production Function & Cost of Production A firm’s production function is given as – q...
Cobb-Douglas Production Function & Cost of Production A firm’s production function is given as – q = 2K0.4N0.6 What kind of returns to scale does this production technology exhibit? Justify your answer. Find out the expression for the marginal product of labor. Find out the expression for the marginal product of capital. Find out the expression for MRTS.
For each part of this question write down a Cobb-Douglas production function with the returns to...
For each part of this question write down a Cobb-Douglas production function with the returns to scale called for and perform a proof for each that shows the production function has the correct returns to scale. Constant returns to scale Decreasing returns to scale Increasing returns to scale Increasing returns to scale
You are given this estimate of a Cobb-Douglas production function: Q = 10K0.6L0.8 A. Calculate the...
You are given this estimate of a Cobb-Douglas production function: Q = 10K0.6L0.8 A. Calculate the output elasticities of capital and labor. (Note: As shown on p. 300, for the Cobb-Douglas production function Q = 10KaLb the output elasticity of capital is EK = (%ΔQ/%ΔK) = a and the output elasticity of labor is EL = (%ΔQ/%ΔL) = b. B. Using what you found in Part (A), by how much will output increase if the firm increases capital by 10...
Problem 2 Suppose that an economy’s production function is Cobb- Douglas with parameter = 0.3. c....
Problem 2 Suppose that an economy’s production function is Cobb- Douglas with parameter = 0.3. c. Suppose that a gift of capital from abroad raises the capital stock by 10 percent. What happens to total output ( in percent)? The rental price of capital? The real wage? d. Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output ( in percent)? The rental price of capital? The real wage?
Which is/are incorrect about the Cobb-Douglas production function: Y equals K to the power of alpha...
Which is/are incorrect about the Cobb-Douglas production function: Y equals K to the power of alpha L to the power of 1 minus alpha end exponent (0 < alpha < 1 )? All are correct it increases in both K and L the share of total income that goes to capital and labor depend on the amount of K and L it exhibits diminishing marginal returns to both K and L it is constant returns to scale