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Economics 302 Name ________________________________________ Summer2007 Answers to Second Quiz Student ID Number _____________________________ The following quiz is worth a total of 2.5 points. If your work is sloppy or illegible points will be subtracted. 1. Suppose that the production function for an economy is given by Y = F(K,L) = AK 1/2 L 1/2 Where Y is output, A is the level of technology, K is capital and L is labor. a. (.25 points) If the value of L is 400, the value of K is 625, and the value of A is 2, what is the value of output in this economy? Show your work. Y = AK 1/2 L 1/2 = (2)(25)(20) = 1000 units of output b. (.25 points) Given the values in part (a), calculate capital productivity. Show your work. Be sure to show the relevant units of measurement in your answer. Capital Productivity = Y/K = 1000/625 = 1.6 units of output per unit of capital c. (.25 points) If labor and technology are held constant, but capital is increased to 900 units, what happens to capital productivity? Verbally describe the effect of this change on capital productivity. Capital productivity will decrease since as additional units of capital are hired, while labor and technology are held constant, this causes the marginal product

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