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A firm experiences technological progress from time 1 to time 2. At one of the times...

A firm experiences technological progress from time 1 to time 2. At one of the times their production function is QA =L^1/0 K^1/4 and at other time it is QB =L^4/3 K^1/2. Assume that L > 1 and K > 1 .
(a) What is their production function at time 1 and time 2 if they expericnced technological progress?
(b) Is this change labor saving, capital saving, or neutral?
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Answer #1

a. Since technological progress in the economy increases the share of capital in production and increased share of capital is represented by production function Qb where the share of capital has increased to 1/2 from 1/4. Thus, Qa represents the production function at time 1 and Qb represents the production function at time 2.

b. The technological progress is more of labor savings because share of capital in the new production function has decreased and share of capital in the new production fucntion has increased. Thus, it is labor savings technological progress.

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