Question: Suppose that the production function is given by Y = AK ^ 0 . 4 N ^ 0 . 6 . What is the change
Suppose that the production function is given by YAKN What is the change in output if both capital and labor rise by and total factor productivity falls by The answer is Since the production function is constant Returns to Scale, when both K and N rise by so does output. But since A is falling by also, this by itself lowers output by Hence, the overall effect on output is But I don't understand the answer. My calculators says: Assume A K and N: : : Assume A K and N : Why the answer is not Please give detailed explanation. Thank you.
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