11. Country A and country B both have the production function Y=F(K, L) = K¹/2 [1/2 a. Does this production function have constant returns to scale? Explain. b. What is the per-worker production function, y = f(k)? Hint, do not overthink this one, just use algebraic manipulation. c. Assume that neither country experiences population growth nor technological progress and that 5 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country B saves 20 percent of output each year. Using your answer from part (b) and the steady-state condition that investment equals depreciation, find the steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker and consumption per worker.

11. Country A and country B both have the production function Y=F(K, L) = K¹/2 [1/2 a. Does this production function have constant returns to scale? Explain. b. What is the per-worker production function, y = f(k)? Hint, do not overthink this one, just use algebraic manipulation. c. Assume that neither country experiences population growth nor technological progress and that 5 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country B saves 20 percent of output each year. Using your answer from part (b) and the steady-state condition that investment equals depreciation, find the steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker and consumption per worker.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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