Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Consider an economy that produces goods and services according to the production function
F (L, K) = 90L Ki,where L represents the number of workers in an economy and K represents the
combined units of physical and human capital. The marginal products of labour and capital are:
(登)
MPL = 60
30(£)
MPK =
Question 1
Initially: there are 27 workers and 64 units of capital.
Part (a): What is the economy's real GDP and GDP per capita?
1st scenario Suppose L increases to 125 while capital remains constant at 64:
Part (b): Calculate the economy's real GDP and GDP per capita.
Part (c): Relative to the initial scenario (L = 27 and K = 64), how much did MPL change by?
2nd scenario Now suppose L remained constant at 27 workers and capital increased to 216 units:
Part (d): Calculate the economy's real GDP and GDP per capita.
Part (e): Relative to the initial scenario (L = 27 and K = 64), how much did MPK change by?
3rd scenario Finally, suppose L = 54 and K = 128.
Part (f): Calculate the economy's real GDP and GDP per capita.
Question 2
Explain why altering one (L or K) or both (L and K) inputs cannot explain the long-run trend of increasing
standards of living.
Question 3
Describe what must change for the economy to experience persistent increases in standard of living.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa749898a-0830-4ae1-b2d6-709fc2552775%2Ff4f5df32-c815-4500-abf8-ded41db9958a%2Fxzppm8_processed.png&w=3840&q=75)
Transcribed Image Text:Consider an economy that produces goods and services according to the production function
F (L, K) = 90L Ki,where L represents the number of workers in an economy and K represents the
combined units of physical and human capital. The marginal products of labour and capital are:
(登)
MPL = 60
30(£)
MPK =
Question 1
Initially: there are 27 workers and 64 units of capital.
Part (a): What is the economy's real GDP and GDP per capita?
1st scenario Suppose L increases to 125 while capital remains constant at 64:
Part (b): Calculate the economy's real GDP and GDP per capita.
Part (c): Relative to the initial scenario (L = 27 and K = 64), how much did MPL change by?
2nd scenario Now suppose L remained constant at 27 workers and capital increased to 216 units:
Part (d): Calculate the economy's real GDP and GDP per capita.
Part (e): Relative to the initial scenario (L = 27 and K = 64), how much did MPK change by?
3rd scenario Finally, suppose L = 54 and K = 128.
Part (f): Calculate the economy's real GDP and GDP per capita.
Question 2
Explain why altering one (L or K) or both (L and K) inputs cannot explain the long-run trend of increasing
standards of living.
Question 3
Describe what must change for the economy to experience persistent increases in standard of living.
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