If an economy described by the production function Y = $\sqrt { K }$ has 30% of output invested in new capital and 6% of the capital stock depreciated each year, what is the steady-state level of capital?

Question

Quizplus · Accepted Answer

In the steady state, investment equals depreciation. Given the production function Y = $\sqrt{K}$, investment is 0.3Y = 0.3$\sqrt{K}$. Depreciation is 0.06K. Setting them equal: 0.3$\sqrt{K}$ = 0.06K. Solving for K gives K = 25 units.

If an Economy Described by the Production Function Y = K\sqrt { K }K​

If an Economy Described by the Production Function Y = $\sqrt { K }$