Question: Consider a production function F left parenthesis K comma L right parenthesis space equals space A K to the power of alpha L to the

Consider a production function F left parenthesis K comma L right parenthesis space equals space A K to the power of alpha L to the power of 1 minus alpha end exponent. The rate of return on capital is given by the equation R subscript k equals A alpha left parenthesis L over K right parenthesis to the power of 1 minus alpha end exponent. Suppose that A = 1, alpha equals 0.2, and the labor-capital (L/K) ratio is 0.5. What is R subscript k ? Use five decimal places.

If the labor-capital ratio is 0.5, but the technology parameter, A, increases to 1.5, what is the rate of return on capital?

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