1.

a. A technological breakthrough raises a country’s total factor productivity A

by 10%. Show how this change affects the graphs of both the production function relating output to capital and the production function relating output to labor.

b. Show that a 10% increase in also increases the MPK A

and the MPN by 10% at any level of capital and labor.

(Hint: What happens to

ΔK

ΔY for any increase in capital,

, or for any increase in labor,

ΔN

?)

c. Can a beneficial supply shock leave the MPK and MPN unaffected? Show your answer graphically.