Consider the Solow model with a firm-specific production function y; = AK k, where lower-case variables...

 

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Consider the Solow model with a firm-specific production function y; = AK k, where lower-case variables pertain to firm i, and upper-case variables are ag- gregate to the whole economy. (a) (1 point) What is the marginal product of the capital stock of firm j, kj? Is it diminishing or constant? (b) (2 points) If I aggregate the firm-specific production function, assuming that all firms are equal, I obtain an aggregate production function of the form Y = AK¹-Ka. What is the marginal product of the aggregate capital stock, K? Is it diminishing or constant? Consider the Solow model with a firm-specific production function y; = AK k, where lower-case variables pertain to firm i, and upper-case variables are ag- gregate to the whole economy. (a) (1 point) What is the marginal product of the capital stock of firm j, kj? Is it diminishing or constant? (b) (2 points) If I aggregate the firm-specific production function, assuming that all firms are equal, I obtain an aggregate production function of the form Y = AK¹-Ka. What is the marginal product of the aggregate capital stock, K? Is it diminishing or constant?

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ANSWER a The marginal product of the capital stock of firm j kj is given by the pa... View the full answer