Consider Two Competitive Economies That Have the Same Quantities of Labor

question 66

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 L0.3K0.7
South Economy: Y = A L0.7K0.3
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:

Quantity Supplied

The total amount of a good or service that producers are willing to sell at a given price over a specific period.

Demand Increase

A situation where there is a higher quantity of a good or service desired at each price level, often depicted as a rightward shift of the demand curve.

Price Of Inputs

The cost associated with acquiring the raw materials or factors used in the production of goods and services.

Number Of Consumers

The total count of individuals or entities that purchase or are potential purchasers of goods and services in a given market.