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review questions

# review questions - (instead of the usual Cobb-Douglas...

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Additional review questions 1. Let the aggregate production function be Y A F K , L , where F K , L K 4 L and A 1. (1) Does the function exhibit constant returns to scale? (2) What is the marginal product of capital when the input bundle is K , L 2,2 ? What is the marginal product of capital when the input bundle is K , L 3,2 ? Is the marginal product of capital decreasing in K ? (3) Let the input bundle be K , L 1,1 , let the wage rate be the marginal product of labor, and let the rental rate be the marginal product of capital. What is the factor share of labor? What is the factor share of capital? 2. In the Solow model, let the aggregate production function be the one in question 1
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Unformatted text preview: (instead of the usual Cobb-Douglas function). Let the labor force be constant, denoted L . (1) Verify that now K t 1 K t sA t K t 4 L − K t . (2) What is the transitional equation (i.e., one pertaining to the transition of k , capital per worker) now? (Hint: Divide the equation in (1) by L and note k t K t / L .) (3) Let s 0.1 and 0.2 and A t 1 all t . Let k 1. Find the values of k 1 and k 2 . Also, find the steady state k . (As in the usual Solow model, when there is no technological progress, the economy is in a steady state from date t if k t 1 k t .)...
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