Assume that a competitive economy can be described by a constant returns to scale, Cobb–Douglas, pro- duction function. Suppose that in this economy all factors of production are fully employed. Holding other factors constant, including the quantity of capital and technology, carefully explain how a one-time, 10-percent decrease in the quantity of labor will change each of the following: the level of output produced (That is, will output increase or decrease (by more or less than the change in labor) or remain the same? Explain); the real wage of labor; the real rental price of capital; labor’s share of total income.

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