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 A also increases the MPK and the MPN by 10% at any level of capital and labor. (Hint: What happens to ! Y for any increase in capital, ! K, or for any increase in labor, ! N?)

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