Consider Two Competitive Economies That Have the Same Quantities of Labor

question 105

Essay

Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb-Douglas production functions:
North Economy: Y = A L.3K.7
South Economy: Y = A L.7K.3
a. Which economy has the larger total production? Explain.
b. In which economy is the marginal product of labor larger? Explain. c. In which economy is the real wage larger? Explain.
d. In which economy is labor's share of income larger? Explain.

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Definitions:

Primary Alkane

Alkanes where the carbon atoms are connected in a straight chain without any branches.

Gasoline

A volatile, flammable liquid made from crude oil or petroleum, used primarily as fuel in internal combustion engines.

Branched Alkane

Hydrocarbons featuring a tree-like structure, where carbon chains deviate from a straight chain due to side chains.

London Force

Weak, temporary van der Waals forces arising from the instantaneous polarization of molecules due to the movement of electrons.