Answered: in order for a production curve to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

in order for a production curve to shift out?

a. there has to be more unemployment

b. there has to be an increase in supply

c. there has to be an increase in demand

d. there has to be an increase in technology

Expert Solution

Step 1 Technological improvement

For example, suppose that the technology is given-

- Y_t = F (K_t, L_t) = AK_t^αL_t^1-α
- Where K is capital stock at the time t, L is the amount of labor at time t, and A is total factor productivity.

Let us consider the Solow Model-

The law of motion of capital is given as-
- Δk = sy_t - ?k_t
In the steady-state, Δk = 0.
That is, i_t = sy_t = ẟAk_t* where i is the investment per worker at time t and k* is the steady-state capital per worker at time t.

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