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Assume that a competitive economy can be described by a constant returns to scale ( Cobb- Douglas) production function, and all factors of production are
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 labor and technology, carefully explain how a one-time, 50- percent decrease in the quantity of capital ( perhaps the result of war damage) 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. Capital's share of total income
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