1. Suppose an economy's production is defined by the following neoclassical production function: Y=50K ^1/3L ^2/3. Suppose further that the economy wide supply of capital and labor are given as 125 and 64. What will be the equilibrium rental rate of capital in this economy?

2. Suppose an economy's production is defined by the following neoclassical production function: Y=50K ^1/3L ^2/3. Suppose further that the economy wide supply of capital and labor are given as 125 and 64. What happens to output per worker if there is a war that destroys half the capital in the economy?

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1 To find the equilibrium rental rate of capital in this economy we need to determine the value of t... View the full answer