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Consider an economy with three factors of production: unskilled labor U, skilled labor S, and capital K. Production in this economy occurs via the production
Consider an economy with three factors of production: unskilled labor U, skilled labor S, and capital K. Production in this economy occurs via the production function F(U,S,K) = USK1 where (0,1), (0,1), and ( ) (0,1). All factors of production are paid their marginal product. 1.Suppose=0.3,=0.45,U=2,S=3,andK=4. Computethe unskilled wage WU , skilled wage WS , and interest rate R. 2. What are the labor share, capital share, and profit share? 3. Now suppose the relative supply of skilled labor increases, so that U = 1.5 and S = 3.5. What are the labor, capital, and profit shares then? Provide intuition for why these shares did (or did not) change
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