Find steady state level - production function, Microeconomics

1. Consider a model economy with a production function

Y = K0.2(EL)0.8,

where K is capital stock, L is labor input, and Y is output. The savings rate (s), which is defined as s = S/Y (where S is aggregate savings), is a constant. The aggregate savings finance aggregate investment (thus It = St). The population growth rate (n), growth rate of labor efficiency level (g), and depreciation rate of capital (d) are all constants.

(a) Show that this production function indicates constant return to scale.

(b) Show that this production function indicates decreasing marginal product of labor (MPL).

(c) Define capital per efficiency unit worker (k=K/EL) and output per efficiency unit worker (y=Y/EL). Express y as a function of k.

(d) Find steady state levels of k and y (k* and y*). Note that steady state is defined as a state where k does not change over time. Thus, the economy is in steady state at period t if and only if we have kt+1 = kt (= k*).

(e) Suppose there are two countries, the developed North (N) and the developing South (S). The North has 48% savings rate (s=0.48) and 0% population growth rate (n=0). The South has 9% savings rate (s=0.09) and 6% population growth rate (n=0.06). Both share the growth rate of efficiency level of 1% (g=0.01) and depreciation rate of 2% (d=0.02). What are the steady state level of y in the North and the South (yN* and yS*)?

Posted Date: 3/7/2013 4:17:49 AM | Location : United States







Related Discussions:- Find steady state level - production function, Assignment Help, Ask Question on Find steady state level - production function, Get Answer, Expert's Help, Find steady state level - production function Discussions

Write discussion on Find steady state level - production function
Your posts are moderated
Related Questions
Q. Explain the Post-Keynesian Economics? Post-Keynesian Economics: A modern heterodox school of economic thought that emphasizes more radical or non-neoclassical aspects of Joh

Labor Total Output 1 30 2 50 3 60 4 75 5 80 a) If the price of the firm’s output is $12 per unit and the wage rate is $100 per worker, how many workers should the firm choose to

Motives of regional financial institutions: There are mixed motives for the donor countries to provide development assistance to developing nations. While a desire for poverty

Demand Pull Inflation and Cost-Push Inflation: Demand Pull Inflation: It describes a sustained increase in the general price level that is caused by a permanent increase in n


what is mrs

Lynne’s income is $2, 000 and she is risk averse. The probability of someone slipping on her stairs is 1 8 . If this happens, she will be sued for $1, 000 and will have to pay that

a reduction in investment spending would lead to

REAL VERSUS NOMINAL PRICES • Nominal price is a complete or current dollar price of a good or service when it is sold. • Real price is the price related to a combined me

Consider the following insurance market. There are two states of the world, B and G, and two types of consumers, H and L, who have probabilities pH =0.5 and pL =0.25 (high and low