Assume a Cobb-Douglas production function where the share of labor is 0.7 and the share of capital is 0.3.If there is no technological progress, labor grows at 2%, and capital grows at 1.5%, then real output will grow by
A)0)45%
B)1)50%
C)1)85%
D)2)85%
E)3)05%

Question

Quizplus · Accepted Answer

According to the Cobb-Douglas production function, the growth rate of real output can be calculated as follows:

Growth rate of real output = (0.7 x 2%) + (0.3 x 1.5%) = 1.4% + 0.45% = 1.85%

Therefore, the best choice is C) 1.85%.

Assume a Cobb-Douglas Production Function Where the Share of Labor