Suppose the economy's production function is Y = AK0.3N0.7. Suppose K = 200, N = 2000, and A = 1. Calculate the marginal products of labor and capital
What will be an ideal response?
Using calculus, the marginal product of capital is dY/dK = 0.3A(N/K)0.7 and dY/dN = 0.7A(K/N)0.3.
Plugging in the values for N and K gives: MPK = 0.3 (2000/200)0.7 = 1.5; MPN = 0.7 (200/2000 )0.3 = 0.35. If you do not use calculus, you can arrive at the same answer (rounded) by plugging the values of for A, N and K into the production function to find Y = 1002.37. Increase K by 1 and recalculate Y; it is now 1003.88. The difference is the MPK = 1003.88 - 1002.37 = 1.51. Increase N by 1 and recalculate Y; it is 1002.73. The difference is the MPN = 1002.73 - 1002.37 = 0.36.
You might also like to view...
What is the difference between a positive and a negative relationship?
What will be an ideal response?
Which of the following would most likely occur if the federal government increased its spending and enlarged the size of the budget deficit during a period of full employment?
a. The rate of inflation would decline. b. The r ate of inflation would rise. c. A recession would develop. d. Interest rates would fall.
The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:
A. the league imposes harsh penalties for steroid use. B. the average quality of batters has fallen. C. baseball diamonds have become larger. D. specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.
Mia always carries $50 in her purse to pay for groceries. This is an example of the
A. precautionary demand for money. B. asset demand for money. C. transactions demand for money. D. wealth demand for money.