Ecuador's economy has a production function that is as follows: Y = K2/5L3/5 The men in Ecuador generally stay home performing household chores while women work. Since the Ecuadorian state television stopped airing soap operas, many men decided to join the workforce and thus the labor force increased by 6.5%. However, recent storms have destroyed much of the capital stock of the country and thus the capital stock shrank by 2.5%. A. Assuming there is no change in total factor productivity in Ecuador, how would the output of Ecuador's economy change? B. How would labor productivity (output per worker) be affected by the increase in labor and decrease in capital stock? Explain. C. Assuming instead that Ecuador's economy grew by 4.9%, what would be the change in total factor productivity in the economy?
Ecuador's economy has a production function that is as follows:
Y = K2/5L3/5
The men in Ecuador generally stay home performing household chores while women work. Since the Ecuadorian state television stopped airing soap operas, many men decided to join the workforce and thus the labor force increased by 6.5%. However, recent storms have destroyed much of the capital stock of the country and thus the capital stock shrank by 2.5%.
A. Assuming there is no change in total factor productivity in Ecuador, how would the output of Ecuador's economy change?
B. How would labor productivity (output per worker) be affected by the increase in labor and decrease in capital stock? Explain.
C. Assuming instead that Ecuador's economy grew by 4.9%, what would be the change in total factor productivity in the economy?
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