3.11. Learning-by-doing with microeconomic foundations. Consider a variant of the model in equations (3.22)–(3.25). Suppose firm i’s output is Yi(t) =

Ki(t)

α[A(t)Li(t)]1−α, and that A(t) = BK(t). Here Ki and Li are the amounts of capital and labor used by firm i and K is the aggregate capital stock. Capital and labor earn their private marginal products. As in the model of Section 3.5, the economy is populated by infinitely lived households that own the economy’s initial capital stock. The utility of the representative household takes the constant-relative-risk-aversion form in equations (2.1)–(2.2). Population growth is zero.