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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