Answered step by step
Verified Expert Solution
Question
1 Approved Answer
This question focuses on labour productivity, labour demand, and generally on the production function. Assume that the Aggregate Production Function is represented by the
This question focuses on labour productivity, labour demand, and generally on the production function. Assume that the Aggregate Production Function is represented by the following equation: Y = K (AN BN) + CL Y stands for output, K stands for the capital stock, N stands for the number of people employed, L stands for the quantity of land used in production, A and B stand for measures of labour efficiency, and C for a measure of land efficiency. a is a parameter whose value is between 0 and 1, 3 and y are parameters whose values are > 1. (a) Derive the formulas for: - the marginal product of labor (MPN). - the marginal product of capital (MPK). - the marginal product of land (MPL). (b) Using calculus derive a formula for the aggregate labour demand (ND). Express aggregate labour demand as a function of the real wage w (and all other variables and parameters). (c) The aggregate quantity of labor supplied is NS = 50 + (1 + s)w, where s is a wage subsidy paid by the government. Assume that s = 1, A = 100, B = 1/4, K = 1, = 2: solve for the equilibrium real wage (w*), full-employment level (N*). Assume that L = 10, C = 1 and y = 2: find the full-employment level of output (Y*). (d) The government's goal is to achieve the employment level N** = 100: what is the value of the subsidy s** that is needed in order to reach this target? What are the implied wage w** and output Y**? Comment on your findings.
Step by Step Solution
★★★★★
3.49 Rating (159 Votes )
There are 3 Steps involved in it
Step: 1
SOLUTION a The Marginal products of facto...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started