QUESTION 1 This question explores some of the points discussed in the first lecture, with regards to the Simple Model of Production. It is also designed to test your understanding of Chapters 3 and 4 of the prescribed textbook. Consider an economy with the following Cobb-Douglas production function: Y = AKªL® %3D Further, assume the assumptions made in lecture 1 hold and that alpha and beta are both strictly positive. Answer the following questions: a) For this part of the question only, assume a = 0.2 and ß = 1.1. Provide an interpretation for the exponent of the capital input. b) Find expressions for the marginal product of capital (MPK) and labour (MPL) in this economy, using a and ß. For what values of a and ß would the assumption of diminishing return to inputs is satisfied? Provide a brief explanation of what diminishing returns to inputs mean.
QUESTION 1 This question explores some of the points discussed in the first lecture, with regards to the Simple Model of Production. It is also designed to test your understanding of Chapters 3 and 4 of the prescribed textbook. Consider an economy with the following Cobb-Douglas production function: Y = AKªL® %3D Further, assume the assumptions made in lecture 1 hold and that alpha and beta are both strictly positive. Answer the following questions: a) For this part of the question only, assume a = 0.2 and ß = 1.1. Provide an interpretation for the exponent of the capital input. b) Find expressions for the marginal product of capital (MPK) and labour (MPL) in this economy, using a and ß. For what values of a and ß would the assumption of diminishing return to inputs is satisfied? Provide a brief explanation of what diminishing returns to inputs mean.
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.1P
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Transcribed Image Text:QUESTION 1
This question explores some of the points discussed in the first lecture, with regards to the Simple Model of
Production. It is also designed to test your understanding of Chapters 3 and 4 of the prescribed textbook.
Consider an economy with the following Cobb-Douglas production function:
Y = AKª LB
Further, assume the assumptions made in lecture 1 hold and that alpha and beta are both strictly positive.
Answer the following questions:
a) For this part of the question only, assume a = 0.2 and ß = 1.1. Provide an interpretation for the exponent
of the capital input.
b) Find expressions for the marginal product of capital (MPK) and labour (MPL) in this economy, using a
and ß. For what values of a and ß would the assumption of diminishing return to inputs is satisfied? Provide
a brief explanation of what diminishing returns to inputs mean.
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