Question: Consider a CobbDouglas production function with increasing returns to scale, Suppose, in addition, that wages are below the marginal productivity of labor, where >

Consider a Cobb–Douglas production function with increasing returns to scale,

Y = AN KB, a+> 1.

Suppose, in addition, that wages are below the marginal productivity of labor,

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where Ï > 0 can be interpreted as a monopolistic mark-up. What does the Solow residual measured by (4.27) correspond to in this case?

Y = AN KB, a+> 1.

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