Consider Two Competitive Economies That Have the Same Quantities of Labor

question 65

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: $Y = A L ^ { 3 } K ^ { 7 }$
South Economy: $Y = A L ^ { 7 } K ^ { .3 }$
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? Expl ain.
d. In which economy is labor's share of income larger? Explain.

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Definitions:

Self-defeating

Refers to actions or policies that undermine their own goals or purposes.

Psychological Egoism

A theory suggesting that all human actions are motivated by self-interest, even in what seem to be acts of altruism.

Egotistical

Pertaining to or characterized by excessive self-absorption, often considering oneself superior to others.

Motives

The underlying reasons or incentives that drive a person to act in a particular way or pursue certain goals.