Suppose an Economy Uses Only Two Inputs in Production, Capital

question 145

Essay

Suppose an economy uses only two inputs in production, capital and labour. The following table describes a production function, where y stands for output per worker and k is capital per worker.
a.Draw approximately this production function with y on the vertical axis.
b.Show that this production function exhibits diminishing returns to scale.
c.Suppose there are two countries, A and B. The economies of the two countries can be described by this production function. If Country A has initially a capital-labour ratio k = 0.167 and Country B has k = 0.412, show that an equal increase in capital produces more extra output in country A than in Country B.

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Definitions:

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured or reimburses them for expenses from illnesses or injuries.

Workers' Compensation Insurance

Insurance that provides medical benefits and wage replacement to employees injured on the job.

FUTA

This Act enforces a payroll tax on enterprises to finance state labor agencies, known as the Federal Unemployment Tax Act.

SUTA

State Unemployment Tax Act, which mandates unemployment insurance taxes that employers must pay.