Draw a production function that shows the relationship between capital per worker and output per worker assuming there isdiminishing returns to capital. Illustrate the diminishing returns to capital by showing the change in output per worker whencapital is increased by 1 unit at two different levels of capital per worker.

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e the diminishing returns to capital by showin ifferent levels of capital per worker.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Draw a production function that shows the relationship between capital per worker and output per worker assuming there is
diminishing returns to capital. Illustrate the diminishing returns to capital by showing the change in output per worker when
capital is increased by 1 unit at two different levels of capital per worker.

Expert Solution

Step 1

We will take a cobb Douglass production function for solow swan model. In the long run both labour and capital will vary.

Production function

Y = f ( A, K, L)

Y= K^a L^ b

a+b=1

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