Question
Two economies, A and B, have identical aggregate production functions with diminishing returns. In both economies, capital and labor are equally important for production. Economy
Two economies, A and B, have identical aggregate production functions with diminishing returns. In both economies, capital and labor are equally important for production. Economy A has twice as many efficiency units of labor as economy B. Economy B has twice as much physical capital stock as economy A.
Refer to the scenario above. Over time, economy A develops sophisticated technology, and human capital becomes less and less valuable in the production of goods and services that require more and more physical capital. How will this affect economy A's aggregate production function?
A) It will shift up and become less steep if physical capital stock is held constant.
B) It will shift up and become less steep if total efficiency units of labor are held constant.
C) It will shift to the left if physical capital stock is held constant.
D) It will shift to the left and become steeper if total efficiency units of labor are held constant.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
The detailed answer for the above question is provided below Given that economy As ...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