Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose an economy produces two goods, X and Y, and the production function for the economy is given by Y = K^0.5X^0.5, where K is

Suppose an economy produces two goods, X and Y, and the production function for the economy is given by Y = K^0.5X^0.5, where K is the stock of capital in the economy and X is the amount of labor employed. The current stock of capital is 100, and the current amount of labor employed is 25. The wage rate is $10 per unit of labor, and the rental rate of capital is $5 per unit of capital.

a) Calculate the marginal product of labor (MPL) and the marginal product of capital (MPK) at the current levels of labor and capital.

b) Is the production function exhibiting increasing, decreasing, or constant returns to scale at the current levels of labor and capital? Show your calculations.

c) Suppose the government increases the amount of labor employed to 30. Calculate the new output level and the new MPL.

d) Suppose the government introduces a new technology that increases the productivity of labor by 20%. The new production function is Y = K^0.5X^0.6. Calculate the new output level if the same amounts of labor and capital are employed as before.

Step by Step Solution

3.48 Rating (155 Votes )

There are 3 Steps involved in it

Step: 1

The detailed answer for the above question is provided below a The marginal product of labor MPL is ... 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

Mathematical Applications for the Management Life and Social Sciences

Authors: Ronald J. Harshbarger, James J. Reynolds

11th edition

9781337032247, 9781305465183, 1305108043, 1337032247, 1305465180, 978-1305108042

More Books

Students also viewed these Economics questions

Question

If f (x, y) = ln (xy + 1), find f/x and f/y.

Answered: 1 week ago

Question

What is level mixed-model sequencing and why is it important?

Answered: 1 week ago

Question

To what extent has technology had an impact on JIT/lean systems?

Answered: 1 week ago