Assume that Economyland’s production function is Y = F (K, L) = K 0.5 L 0.5 Where Y is output level, K is the amount of capital input, and L is the amount of labor input. a) What is the per-worker production function, y= f (k) for Economyland? b) Assume that 10 percent of capital depreciates each year and savings rate is 20 percent, find the steady-state level of capital per worker for Economyland. Then find the steady-state level of income per worker and steady-state level of consumption per worker. c) Is it possible to save too much? Why?

Microeconomic Theory
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ISBN:9781337517942
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Chapter9: Production Functions
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Problem 9.8P
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 Assume that Economyland’s production function is Y = F (K, L) = K 0.5 L 0.5
Where Y is output level, K is the amount of capital input, and L is the amount of labor
input.

a) What is the per-worker production function, y= f (k) for Economyland?

b) Assume that 10 percent of capital depreciates each year and savings rate is 20 percent,
find the steady-state level of capital per worker for Economyland. Then find the steady-state level
of income per worker and steady-state level of consumption per worker.

c) Is it possible to save too much? Why?

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