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. What is Climate Change? Climate Change:As a consequence of cumulative emission of carbon dioxide (a by-product of fossil fuel use) and other chemicals over past two centurie

Q. Explain about Social-Democracy? Social-Democracy:It's a reformist political strategy that aims to win certain improvements in social and economic conditions under capitalism

. Crumble Corporation produces cookies. Here is the relationship between the number of workers and output (in dozens of cookies) in a given day: Workers Output Marginal Product



1. Definition: AGE-SPECIFIC DEATH RATE is the total number of deaths to residents of a specified age or age group in a specified geographic area (country, state, county, etc.)


what is cardinal utility. Please give an example

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

If the quantity demanded of Pepsi Cola goes up, and its supply enhances what will occur in the market for Pepsi?