Suppose the economy's production function is? = ? K 0.3? 0.7. If K = 2000, N = 100, and A = 1, then Y = 246. If K and N both rise by 20%, and A is unchanged, by how much does Y increase?

Question

Business

Maribel Frank

11 October, 10:27

Suppose the economy's production function is? = ? K 0.3? 0.7. If K = 2000, N = 100, and A = 1, then Y = 246. If K and N both rise by 20%, and A is unchanged, by how much does Y increase?

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Answers (1)

Know the Answer?

Logan Warner · Answer 1

Y=38.8

Y will increase by 38.8

Y=246+38.8

Y=284.8

Explanation:

Y=A. F (K, L)

Y=A. K^0.3, L^0.7

Then

Y=246

A=1

K=2000

N or L=100

Solutions

200=1 (2000^0.3, 100^0.7)

Now the question says both k & N are increased by 0.20

Therefore

Y=1 (2400^0.3, 120^0.7)

Y=1 (10.3 + 28.5)

Y=38.8