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
How are consequences of economists used? Economists generally use efficiency, information, equilibrium and incentive compatibility like focal points, and examine the consequenc

Optimum currency area: An optimum currency area (OCA), also known as an optimal currency regionĀ (OCR), is a geographical region in which it would maximize economic efficiency

1. Refer to the data in the file "asm2Q1.xls" on the annual number of fatalities (FATALS, y ) from gas and dust explosion in coal mines for the years 1915 to 1978 and the number o

causes of monopoly

how do i use the grid technique to determine the least cost



Prove that the utility approach and the indifference curve approach yield the same consumer equilibrium.

Marginal revenue: Marginal revenue is the change in total revenue with respect to a change in quantity sold. That is, it is the change in total revenue that results from the s

Estimating Labour Productivity by Economic Sector for Target Year and its Change between Base and Target Year Contribution of each sector to GDP is known. The contribution of