- Question 1 Suppose That The Economy Has The Following Production Function F K L K0 75 0 25 Where K Is The Amount Of 1 (32.2 KiB) Viewed 49 times
Question 1. Suppose that the economy has the following production function: F(K,L)= K0.75 0.25 where, K is the amount of capital and L is the amount of labor. The economy begins with 100 units of capital and 100 units of labor. Use a calculator and equations in Lecture 2 to find a numerical answer to each of the following questions. (a) How much output does the economy produce? (b) Determine the real wage and the real rental rate of capital. (c) What share of output does labor receive? (d) Suppose that a pandemic hits the economy and half of the labor is unable to work. What would the new level of output be? (e) What are the new real wage and the real rental rate of capital. (f) What share of output does labor receive now?