You are given the production function Y = AK1/5R1/5H1/5N2/5, where K represents physical capital, R represents infrastructure

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You are given the production function Y = AK1/5R1/5H1/5N2/5, where K represents physical capital, R represents infrastructure capital, and H represents human capital. Convert this to a function relating Y/N to K/N, R/N, and H/N. Now consider two countries that have access to the same information on technology, the same quality and quantity of labor and capital of each type, as well as the same production function given above. Both countries are geographically similar. However, the first country, Country 1, has per person output ten times as high as the second country, Country 2. The only relevant difference between the two countries is that the same fraction of the capital of each type in Country 2 is diverted to unproductive activity, while there is no diversion in Country 1. Find the fraction of the per person capital of each type that is being diverted. In this problem, N represents the number of hours of labor.
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Macroeconomics

ISBN: 978-0138014919

12th edition

Authors: Robert J Gordon

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