Assume that the production function is Cobb-Douglas with parameter α = 0.3. If capital and labour are paid their marginal products, they receive the shares of income:
A)0.3 and 0.3.
B)0.7 and 0.7.
C)0.3 and 0.7.
D)0.7 and 0.3.

Question

Quizplus · Accepted Answer

In a Cobb-Douglas production function, the parameter α represents the output elasticity of capital, meaning capital receives a share of income equal to α (0.3), and labor receives the remaining share, which is 1 - α (0.7).

Assume That the Production Function Is Cobb-Douglas with Parameter α