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econ 175 - ps#4 - Soyoun Ahn SID 17460348 1 a See graph...

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Soyoun Ahn Econ 175 SID 17460348 PS #4 1) a. See graph below. 1) b. P* represents the point where the Total Output line begins to curve. The APL=MPL at and below this point. When land is abundant, there are no diminishing returns to labor, because more land can be used with the additional labor in the optimal amount. However, since land becomes scarce, further increases in population require that farm size drop below the optimal level, and the returns to labor begin to decline. 1) c. See graph above. 1) d. See graph above. 1) e. When a plague hits, output going to workers is higher. It’s an ambiguous result, because we are not quite sure of the magnitudes of the changes. It is also ambiguous for the landowners. 1) f. Share of rents and wages is the same at and below P*. This means that the wage level for the workers equals the marginal productivity of labor and the average productivity, thus all gains go to the workers and none goes to the landowner. Thus wXp*=MPLxP*. It is this way because when population is scarce, the value of the laborer increases, thus the landowner cannot as easily compensate them for a lower wage.
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