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PS2 - Problem Set#2 Solutions Chapter 3 1 a According to...

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Problem Set #2 Solutions Chapter 3, # 1 a. According to the neoclassical theory of distribution, the real wage equals the marginal product of labor. Because of diminishing returns to labor, an increase in the labor force causes the marginal product of labor to fall. Hence, the real wage falls. b. The real rental price equals the marginal product of capital. If an earthquake destroys some of the capital stock (yet miraculously does not kill anyone and lower the labor force), the marginal product of capital rises and, hence, the real rental price rises. c. If a technological advance improves the production function, this is likely to increase the marginal products of both capital and labor. Hence, the real wage and the real rental price both increase. Chapter 3, #5 a. According to the neoclassical theory, technical progress that increases the marginal product of farmers causes their real wage to rise. b.
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PS2 - Problem Set#2 Solutions Chapter 3 1 a According to...

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