(a) Show that, when the production function is Cobb-Douglas (for simplicity, as- sume that there are...

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(a) Show that, when the production function is Cobb-Douglas (for simplicity, as- sume that there are only two inputs: Y = F(K, L) = KaL³, with a > 0 and B> 0), constant returns to scale and diminishing marginal returns (to capital and labor here) are equivalent. Note: to show that AB, one must show that A B (if state- ment A holds then B holds too) and B⇒ A (conversely). (b) What is the main implication of diminishing marginal returns in the Solow model? Explain. (a) Show that, when the production function is Cobb-Douglas (for simplicity, as- sume that there are only two inputs: Y = F(K, L) = KaL³, with a > 0 and B> 0), constant returns to scale and diminishing marginal returns (to capital and labor here) are equivalent. Note: to show that AB, one must show that A B (if state- ment A holds then B holds too) and B⇒ A (conversely). (b) What is the main implication of diminishing marginal returns in the Solow model? Explain.

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a Show that when the production function is CobbDouglas for simplicity as sume that there are only t... View the full answer