Consider two competitive economies that have the same quantities of labour (L = 400) and capital (K = 400), as well as the same technology (A = 100). The economies of the countries are described by the following Cobb-Douglas production functions:

North Economy: Y = A L^.3K^.7

South Economy: Y = A L^.7K^.3

a.Which economy has the larger total production? Explain.
b.In which economy is the marginal product of labour larger? Explain.
c.In which economy is the real wage larger? Explain.
d.In which economy is labour's share of income larger? Explain.

Question

Quizplus · Accepted Answer

The Answer of Consider two competitive economies that have the same quantities of labour (L = 400) and capital (K = 400), as well as the same technology (A = 100). The economies of the countries are described by the following Cobb-Douglas production functions: North Economy: Y = A L^.3K^.7 South Economy: Y = A L^.7K^.3 a.Which economy has the larger total production? Explain. b.In which economy is the marginal product of labour larger? Explain. c.In which economy is the real wage larger? Explain. d.In which economy is labour's share of income larger? Explain.

Consider Two Competitive Economies That Have the Same Quantities of Labour