The Cobb-Douglas Aggregate Production Function Provides a Fairly Good Approximation

question 48

Multiple Choice

The Cobb-Douglas aggregate production function provides a fairly good approximation of the U.S.economy if we assume that

• A)the shares of capital and labor are equal
• B)the share of capital is 0.65 and the share of labor is 0.35
• C)the share of capital is 0.45 and the share of labor is 0.55
• D)the share of capital is 0.25 and the share of labor is 0.75
• E)the share of capital is 0.15 and the share of labor is 0.85

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Definitions:

Public Good

Goods that are non-excludable and non-rivalrous, meaning that consumption by one individual does not reduce availability to others, and people cannot be prevented from using them.

Consumption

The act of using goods and services by households.

External Costs

Costs of economic activity not borne by the producer or consumer but by society, often not reflected in the price of goods or services.

Economic Efficiency

A situation where resources are allocated in a way that maximizes the production of goods and services at the lowest cost.