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midterm2008s - ECO325S Mid-Term Examination Duration 2...

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ECO325S: Mid-Term Examination Duration: 2 hours NO AIDS ALLOWED Note to student: Enter your name and student number on each examination book that you use. There are four questions on this test for a total of 120 marks. Read each question carefully and note the number of points allocated to each part. Good Luck. 1. (Total 30 points) Assume that final output is produced by the following production function: ln Y t  0 ln K t  2 ln A t L t 1 3 A t L t a. (6 points) What restrictions on 0 , 1 , 2 and 3 are necessary to make this function exhibit constant returns to scale in capital and effective labour. b. (6 points) What is the intensive form of the cobb-douglas production function? 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 marginal Returns on capital per unit of effective labour? iii. (4 points) The inada conditions iv. (10 points) What is the economic interpretation of: (1) a positive marginal product of capital per unit of effect labour, (2) diminishing returns on capital per unit of effective labour, and (3) the inada conditions. 2. (Total 20 points) Assume that the final output of the economy is defined by Y t K t  A t L t  1 a.
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