quiz2spring2008answerstth

quiz2spring2008answerstth - Economics 302 Spring2008*...

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Economics 302 Name ___________________________ Spring2008** Tuesday/Thursday Lecture Answers to Quiz #2 Discussion Section Number ________________ 1. You are given the following information about an economy's long run aggregate production function. This production function is a Cobb-Douglas production function with constant returns to scale. Furthermore, firms in this economy are perfectly competitive profit maximizing firms. The input markets for capital and labor are also perfectly competitive. Use the following information and your knowledge of the relationship between the marginal product of an input and its real price, to calculate the amount of labor and the amount of capital hired in this economy. Show your work. Y = AK α L 1-α where Y = real output, K = units of capital, L = units of labor A = 2 A = measure of technology in the economy α = .5 α = capital's share of income R = 2 R = rental price of capital P = 2 P = aggregate price level Y = 800 W = nominal wage rate W = 2 a. (.5 points) Show your work here for calculating the amount of labor (L) hired by this
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quiz2spring2008answerstth - Economics 302 Spring2008*...

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