Suppose you observe over the last 15 years that the percentage growth in output was 25%, percentage growth in capital was 10%, and percentage change in labor was 20%. Assume elasticity of output with respect to capital is 0.4 and elasticity of output with respect to labor is 0.6. Calculate the contributions to output growth from capital and labor, and then solve for productivity growth.
Suppose you observe over the last 15 years that the percentage growth in output was 25%, percentage growth in capital was 10%, and percentage change in labor was 20%. Assume elasticity of output with respect to capital is 0.4 and elasticity of output with respect to labor is 0.6. Calculate the contributions to output growth from capital and labor, and then solve for productivity growth.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.2P
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Suppose you observe over the last 15 years that the percentage growth
in output was 25%, percentage growth in capital was 10%, and percentage
change in labor was 20%. Assume elasticity of output with respect to capital
is 0.4 and elasticity of output with respect to labor is 0.6. Calculate the
contributions to output growth from capital and labor, and then solve for
productivity growth.
Please show equation throughout the whole process
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