Assume That a Competitive Economy Can Be Described by a Constant

question 142

Essay

Assume that a competitive economy can be described by a constant returns to scale (Cobb-Douglas) production function and all factors of production are fully employed. Holding other factors constant, including the quantity of labor and technology, carefully explain how a one-time, 50-percent decrease in the quantity of capital (perhaps the result of war damage) will change each of the following: a. the level of output produced;
b. the real wage of labor;
c. the real rental price of capital;
d. capital's share of total income.

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Definitions:

Luxury Items

Goods or services that are considered indulgent or non-essential, characterized by high quality, price, and status symbol.

Radio Airwaves

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Behavior that violates moral or ethical principles, often socially defined and varying greatly across different cultures and communities.

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The process by which a government authority records and acknowledges an individual's ownership of a vehicle, allowing it to be legally driven on public roads.