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Consider the following Cobb-Douglas production function , Y= AL^BetaK^Alpha Y = total production (the real value of all goods produced in a year or 365.25

Consider the following Cobb-Douglas production function , Y= AL^BetaK^Alpha

  • Y= total production (the real value of all goods produced in a year or 365.25 days)
  • L= labour input (person-hours worked in a year or 365.25 days)
  • K= capital input (a measure of all machinery, equipment, and buildings; the value of capital input divided by the price of capital)[clarification needed]
  • A= total factor productivity
  • and are the output elasticities of capital and labor, respectively. These values are constants determined by available technology.

Suppose that labour is paid its marginal product, so that the real wage (W/P) equals the marginal product of labour. Which of the following statements must be true?

a. The production function exhibits decreasing returns to scale.

b. W/P = 0.8(Y/L)

c. Labour's share of inc

d. Capital's share of income is 1.

e. W/P = 0.2(Yome is 0.2./L)

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