Assume That the Production Function Is Given by Y =

question 111

Essay

Assume that the production function is given by Y = AK0.5L0.5, where Y is GDP, K is capital stock, and L is labor. The parameter A is equal to 10. Assume also that capital is 100, labor is 400, and both capital and labor are paid their marginal products.
a.What is Y?
b.What is the real wage of labor?
c.What is the real rental price of capital (the amount of output paid per unit of capital)?

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Definitions:

Cash Flow

The total amount of money being transferred into and out of a business, especially affecting liquidity and overall financial health.

Bid Prices

The highest price that a buyer is willing to pay for a security or commodity.

Break-Even

The point at which total costs and total revenue are equal, resulting in no net loss or gain for a business.

Required Return

The minimum return an investor expects to achieve by investing in a particular asset or project.