Economics 200Macroeconomic TheoryProblem Set 1Due at the beginning of class on September 11, 2007.1. What type of returns to scale are exhibited by the following productionfunctions where each of the parameters, , and are positive.+,)1(a) ;]œ+O,P(b) ; and,] œÖ+Oß ,P×min(c) ?] œE +Ð,OÑ Ð"+ÑÒÐ",ÑPÓ˜™))")2. Suppose that the production function with describes the]œEOPœαα""α3technology in an economy.(a) What is the percentage increase in GDP if the amount of labor inputincreases by 2%?(b) What happens to the real wage and the real rental price of capital if theamount of labor input increases by 2%?(c) What happens to output per unit of labor if the amount of labor inputincreases by 2%?3. Consider the Cobb-Douglas production function and recall"that where . Suppose that this is the aggregateQT œÐ" ÑEO P!"Pproduction function for a competitive economy with competitive firms. Find the(conditional) labor demand function . Suppose that the labor force is
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.