f) What share of output does labor receive now? 2. Suppose an economy's production function is Cobb Douglas with a parameter [alpha] = 0.3.

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a) what fraction of incomes do capital and labor receive?

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b) Suppose that immigration increases the labor force by 10%. What happens to total output (in percent)? The rental price of capital? the real wage?

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(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?

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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?

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