Q2) The production function of a small economy is Y=K0.3L°7. K is the amount of capital (land), L is the amount of labor. The economy starts with 70 units of land and 80 units of labor. a) How much output does the economy produce? b) What are the wage and the rental price of land? c) What share of output does labor receive? d) If a plague kills half the population, what is the new level of output? e) What is the new wage and rental price of land?

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
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Chapter9: Production Functions
Section: Chapter Questions
Problem 9.3P
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Q2) The production function of a small economy is Y=K0.3L0.7, K is the amount of
capital (land), L is the amount of labor. The economy starts with 70 units of land
and 80 units of labor.
a)
How much output does the economy produce?
b)
What are the wage and the rental price of land?
C)
What share of output does labor receive?
d)
If a plague kills half the population, what is the new level of output?
e)
What is the new wage and rental price of land?
f)
What share of output does labor receive now?
Transcribed Image Text:Q2) The production function of a small economy is Y=K0.3L0.7, K is the amount of capital (land), L is the amount of labor. The economy starts with 70 units of land and 80 units of labor. a) How much output does the economy produce? b) What are the wage and the rental price of land? C) What share of output does labor receive? d) If a plague kills half the population, what is the new level of output? e) What is the new wage and rental price of land? f) What share of output does labor receive now?
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