Question
Country A and country B both have the production function Y = F(K,L) = K 1/2 L 1/2 a. Does this production function have constant
Country A and country B both have the production function
Y = F(K,L) = K1/2L1/2
a. Does this production function have constant returns to scale? Explain.
b. What is the per-worker production function, y = f(k)?
c. Assume that neither country experiences population growth or technological progress and that
5 percent of capital depreciates each year. Assume further that country A saves 10 percent of
output each year and country B saves 20 percent of output each year. Using your answer from
part (b) and the steady sate condition, find the steady-state level of capital per worker for each
country. Then find the steady state level of income per worker and consumption per worker.
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