Question: Suppose that the production function is Cobb Douglas with parameter = 0.3. a. What fractions of income do capital and labour receive? b. Suppose

Suppose that the production function is Cobb– Douglas with parameter α = 0.3.
a. What fractions of income do capital and labour receive?
b. Suppose that immigration raises the labour force by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?
c. Suppose that a gift of capital from abroad raises the capital stock by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?
d. Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?

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a A CobbDouglas production function has the form Y AK L 1 The text showed that the marginal products for the CobbDouglas production function are MPL 1 YL MPK YK Competitive profitmaximizing firms hire ... View full answer

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