SHOW ALL WORK AND RATIONALE.
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
Get Answers For Free
Most questions answered within 1 hours.