Some economists believe that the US. economy as a wholecan be modeled with the following production function, calledthe Cobb-Douglas production function: Y = AK¹/32/3where Y is the amount of output K is the amount of capital, L isthe amount of labor, and A is a parameter that measures thestate of technology. For this production function, the marginalproduct of labor is MPL = (2/3) A(K/L)¹/³. Suppose that theprice of output P is 2, A is 3, K is 1,000,000, and L is 1/100. Thelabor market is competitive, so labor is paid the value of itsmarginal product.a. Calculate the amount of output produced Y and the dollarvalue of output PY.b. Calculate the wage W and the real wage W/P. (Note: Thewage is labor compensation measured in dollars, whereas thereal wage is labor compensation measured in units of output)

As we know that Cobb-Douglas production function models represents the relationship among production…

Some economists believe that the US. economy as a whole can be modeled with the following production function, called the Cobb-Douglas production function: Y = AK¹/3 L2/3 where Y is the amount of output K is the amount of capital, L is the amount of labor, and A is a parameter that measures the state of technology. For this production function, the marginal product of labor is MPL = (2/3) A(K/L)¹/3. Suppose that the

Some economists believe that the US. economy as a whole can be modeled with the following production function, called the Cobb-Douglas production function: Y = AK¹/3 L2/3 where Y is the amount of output K is the amount of capital, L is the amount of labor, and A is a parameter that measures the state of technology. For this production function, the marginal product of labor is MPL = (2/3) A(K/L)¹/3. Suppose that the

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.2P

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please asnwer the question in the image Some economists believe that the U.S. economy as awhole can be modeled with the following productionfunction, called the Cobb–Douglas production function:Y 5 AK1/3L2/3,where Y is the amount of output, K is the amount ofcapital, L is the amount of labor, and A is a parameterthat measures the state of technology. For this productionfunction, the marginal product of labor isMPL 5 (2/3) A(K/L)1/3.Suppose that the price of output P is 2, A is 3, K is1,000,000, and L is 1,000. The labor market is competitive,so labor is paid the value of its marginal product.a. Calculate the amount of output produced Y and thedollar value of output PY.b. Calculate the wage W and the real wage W/P. (Note:The wage is labor compensation measured in dollars,whereas the real wage is labor compensationmeasured in units of output.)c. Calculate the labor share (the fraction of the value ofoutput that is paid to labor), which is (WL)/(PY).d. Calculate what happens to output Y,…
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