Assume that a competitive economy can be described by a constant returns to scale (Cobb- Douglas) production function and all factors of production are fully employed. Holding other factors constant, including the quantity of capital and technology, carefully explain how a one-time, 10 percent increase in the quantity of labor (perhaps the result of a special immigration policy) will change each of the following:
a.the level of output produced;
b.the real wage of labor;
c.the real rental price of capital;
d.labor's share of total income.

Question

Quizplus · Accepted Answer

The Answer of Assume that a competitive economy can be described by a constant returns to scale (Cobb- Douglas) production function and all factors of production are fully employed. Holding other factors constant, including the quantity of capital and technology, carefully explain how a one-time, 10 percent increase in the quantity of labor (perhaps the result of a special immigration policy) will change each of the following:
a.the level of output produced;
b.the real wage of labor;
c.the real rental price of capital;
d.labor's share of total income.

Assume That a Competitive Economy Can Be Described by a Constant