Consider two competitive economies that have the same quantities of labor and capital (K=L), and the same technology. The economies of the countries are described by the following Cobb–Douglas production func- tions: North Economy: Y = AK^0.7 L^0.3 South Economy: Y = AK^0.3 L^0.7 Compare the total production in these two countries and explain your answer. In which economy is the marginal product of labor larger? Explain your answer. In which economy is the labor’s share of income higher? Explain your answer.
Consider two competitive economies that have the same quantities of labor and capital (K=L), and the same technology. The economies of the countries are described by the following Cobb–Douglas production func- tions:
North Economy: Y = AK^0.7 L^0.3
South Economy: Y = AK^0.3 L^0.7
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Compare the total production in these two countries and explain your answer.
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In which economy is the marginal product of labor larger? Explain your answer.
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In which economy is the labor’s share of income higher? Explain your answer.
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If half of workers (L) in North immigrated to South, explain how would total output, marginal produc- tivity of labor, and labor’s share of income in the two economies change?
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