Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = A L0.3K0.7 South Economy: Y = A L0.7K0.3 In which economy is the marginal product of labor larger? Explain.

Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = A L0.3K0.7 South Economy: Y = A L0.7K0.3 In which economy is the marginal product of labor larger? Explain.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.6P

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Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = A L.3K.7 South Economy: Y = A L.7K.3 In which economy is the marginal product of labor larger? Explain.
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