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mid2010S - ECO325S Mid-Term Examination February 2010...

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ECO325S: Mid-Term Examination February 2010 Duration: 2 hours NO AIDS ALLOWED Note to student: Enter your name and student number on each examination book that you use. There are five questions on this test for a total of 110 marks. Read each question carefully and note the number of points allocated to each part. Good Luck. 1. (Total 18 points) Assume that final output is produced by the following production function: Y t K 1 A t L t  1 1 2 A t 3 L t a. (6 points) What restrictions on 1 , 2 , and 3 are necessary to make this function exhibit constant returns to scale in A t L t , and K t . b. (4 points) What is the intensive form of this production function when 1 0.34, 2 2, and 3 1? c. Is the intensive form of the production function consistent with: i. (2 points) A positive marginal product of capital per unit of effective labour? ii. (2 points) Diminishing Returns on capital per unit of effective labour? iii. (4 points) The inada conditions 2. (Total 18 points) Assume that the final output of the economy is defined by Y t K t  A t L t  Further, assume that A 0.55 where A is the elasticity of output, Y(t), with respect to the labour augmenting technology A(t). a. (4 points) Using this production function derive the growth rate of total output in terms of the growth rates of K t , A t and L t .
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