Consider again the Solow growth model and the following production function: a). If A = 2, L = 20,000, and K = 400, what is output? b). Suppose the labor force grows by 5% so that it is now 21,000. By how much does output increase? c). Starting again with the conditions in part a, what is capital increases by 5%, so that it is now 420. By how much does output increase?
Answer:
A) Total output would be 10, 047.27.
B) Output increases by 349.07.
C) Output increases by 148.2.
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Calculate the elasticity for each variable and briefly comment on what information this gives you in each case
What will be an ideal response?
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