1. Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), as well as the same technology (A = 100). The economies of the countries are described by the following Cobb-Douglas production functions:

North Economy:Y=A L^0.3K^0.7

South Economy:Y=A L^0.7K^0.3

a. Which economy has the larger total production? Explain.

b. In which economy is the marginal product of labor larger? Explain.

c. In which economy is the real wage larger? Explain.

d. In which economy is labor's share of income larger? Explain.

2. Assume that a competitive economy can be described by a constant returns to scale (Cobb-Douglas) production function and all factors of production are fully employed. Holding other factors constant, including the quantity of capital and technology, explain how a one-time, 10-percent increase in the quantity of labor (perhaps as a result of a special immigration policy) will change each of the following:

a. the level of output produced

b. the real wage of labor

c. the real rental price of capital

d. labor's share of total income