A small country has an aggregate production function given by Y = AK1/2. What would need to happen to its aggregate production function in order to represent an advancement in technology?
A) Capital would need to increase.
B) The variable A would need to increase.
C) The variable A would need to decrease.
D) Capital would need to decrease.

Question

Quizplus · Accepted Answer

An advancement in technology would be represented by an increase in the variable A in the production function Y = AK1/2. Therefore, choice B is the correct answer. An increase in capital (Choice A) would lead to an increase in output but it would not necessarily be an advancement in technology. The decrease in capital (Choice D) would lead to a decrease in output. Decrease in variable A (Choice C) would mean a decrease in overall productivity, which is also not an advancement in technology.

A Small Country Has an Aggregate Production Function Given by Y