Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 2: Revisiting CES Production Function Consider the following Cobb-Douglas function Y = K L-a (a) What are the endogenous variables? What are the

image text in transcribed

Problem 2: Revisiting CES Production Function Consider the following Cobb-Douglas function Y = K L-a (a) What are the endogenous variables? What are the markets that define equilibrium? (b) Find the equilibrium values of the endogenous variables as functions of the model param- eters and exogenous variables for the production model. (c) Formally show what the factor shares of labor and capital are equal to in equilibrium. Now, consider the CES production function Yt = F(K,Lt) = [(a) (K) - [(a)(Ki)" + (1 a)(Li)] * (d) Find the equilibrium values of the endogenous variables as functions of the model param- eters and exogenous variables for the production model. (e) (challenging question: 1 point extra credit) Formally show what the factor shares of labor and capital are equal to in equilibrium. What do you notice about the factor shares of labor between your answers from (b)? What does this tell you about the suitability of using Cobb-Douglas function when you want to study decline in labor income share of GDP?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting

Authors: Karen W. Braun, Wendy M. Tietz

3rd edition

132890542, 978-0132890540

More Books

Students also viewed these Accounting questions