Scenario: Assume the Following Aggregate Production Functions for Two Countries

question 26

Multiple Choice

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.Assume Country A and Country B have equal technology and human capital stock,but Country A's capital stock is 10 percent bigger than Country B's capital stock.What can you say about output in the two countries?

• A) Output is exactly equal in Country A and Country B.
• B) Output is bigger in Country A.
• C) Output is bigger in Country B.
• D) It is not possible to come to any conclusions with the given information.

---

Definitions:

Reasonable Value

A fair market price or level of compensation that would be deemed equitable under normal circumstances.

Gratuitous Promise

A promise for which no consideration is given or required in return, often unenforceable without a deed or under specific legal conditions.

Consideration

In contract law, consideration refers to the value (such as money, a service, or a promise) that is given in exchange for a contractual obligation from the other party.

Illusory Contract

An agreement that fails to bind one party due to vague or unenforceable terms, making it appear to be a contract only in illusion.