(W/P)1= MPL = 0.7 AK0.3L-0.3(W/P)2 = 0.7 AK0.7(1.1L-0.7) (W/P)2/ (W/P)1 = 0.972 Thus we see that while output and the rental rate of capital each rise by 6.9%, the wage falls by 2.8%. c) Suppose that a gift of capital stock from abroad raises the capital stock by 10%.What happens to total output (in percent)? The rental price of capital? the real wage?
d) Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?
