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Consider an economy that produces goods and services according 2 l to the production function F (L, K) = 90L? K3 , where L represents
Consider an economy that produces goods and services according 2 l to the production function F (L, K) = 90L? K3 , where L represents the number of workers in an economy and K represents the combined units of physical and human capital. The marginal products of labour and capital are: MPL = 60%)? MPK = 30(%)% Question 1 Initially: there are 27 workers and 64 units of capital. Part (a): What is the economy's real GDP and GDP per capita? 1st scenario Suppose L increases to 125 while capital remains constant at 64: Part (b): Calculate the economy's real GDP and GDP per capita. Part (c): Relative to the initial scenario (L : 27 and K = 64), how much did MPL change by? 2nd scenario Now suppose L remained constant at 27 workers and capital increased to 216 units: Part (d): Calculate the economy's real GDP and GDP per capita. Part (e): Relative to the initial scenario (L = 27 and K = 64), how much did MPK change by? 3rd scenario Finally, suppose L : 54 and K : 128. Part (f): Calculate the economy's real GDP and GDP per capita. Question 2 Explain why altering one (L or K) or both (L and K) inputs cannot explain the longrun trend of increasing standards of living. Question 3 Describe what must change for the economy to experience persistent increases in standard of living
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