Consider an economy that produces goods and services according to the production functionF (L, K) = 90L Ki,where L represents the number of workers in an economy and K represents thecombined units of physical and human capital. The marginal products of labour and capital are:(登)MPL = 6030(£)MPK =Question 1Initially: there are 27 workers and 64 units of capital.Part (a): What is the economy's real GDP and GDP per capita?1st scenario Suppose L increases to 125 while capital remains constant at 64:Part (b): Calculate the economy's real GDP and GDP per capita.Part (c): Relative to the initial scenario (L = 27 and K = 64), how much did MPL change by?2nd scenario Now suppose L remained constant at 27 workers and capital increased to 216 units:Part (d): Calculate the economy's real GDP and GDP per capita.Part (e): Relative to the initial scenario (L = 27 and K = 64), how much did MPK change by?3rd scenario Finally, suppose L = 54 and K = 128.Part (f): Calculate the economy's real GDP and GDP per capita.Question 2Explain why altering one (L or K) or both (L and K) inputs cannot explain the long-run trend of increasingstandards of living.Question 3Describe what must change for the economy to experience persistent increases in standard of living.

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Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: The Markets For The Factor Of Production

Section: Chapter Questions

Problem 9PA

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Question

Consider an economy that produces goods and services according to the production function
F (L, K) = 90L Ki,where L represents the number of workers in an economy and K represents the
combined units of physical and human capital. The marginal products of labour and capital are:
(登)
MPL = 60
30(£)
MPK =
Question 1
Initially: there are 27 workers and 64 units of capital.
Part (a): What is the economy's real GDP and GDP per capita?
1st scenario Suppose L increases to 125 while capital remains constant at 64:
Part (b): Calculate the economy's real GDP and GDP per capita.
Part (c): Relative to the initial scenario (L = 27 and K = 64), how much did MPL change by?
2nd scenario Now suppose L remained constant at 27 workers and capital increased to 216 units:
Part (d): Calculate the economy's real GDP and GDP per capita.
Part (e): Relative to the initial scenario (L = 27 and K = 64), how much did MPK change by?
3rd scenario Finally, suppose L = 54 and K = 128.
Part (f): Calculate the economy's real GDP and GDP per capita.
Question 2
Explain why altering one (L or K) or both (L and K) inputs cannot explain the long-run trend of increasing
standards of living.
Question 3
Describe what must change for the economy to experience persistent increases in standard of living.

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