Suppose that the production function is Cobb-Douglas with parameter a=0.25.
i. What fractions of income do
capital and labour receive?
ii. Suppose that immigration raises the labour force by 10 percent. what happens to total output (in percent)? The rental price of capital? The real wage?
iii. Suppose that a gift of capital from abroad raises the capital stock by 10 percent. what happens to total output (in percent)? The rental price of capital? The real wage?
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