Suppose the economy's production function is Y = AK^0.3^N^0.7^.If K = 2000,N = 100,and A = 1,then Y = 246.If K and N both rise by 20%,and A is unchanged,by how much does Y increase? A)5% B)10% C)15% D)20%

Question

Quizplus · Accepted Answer

If K and N both increase by 20%, new values will be K = 2400 and N = 120.

Thus, the new production function is Y = 1*2400*S1U1P10.3S1S1120P0S1U1P10.7S1S1120P0S1U1P1.S1S1120P0

Plugging in these new values, we get Y = 295.2

The percentage increase in Y is (295.2-246)/246 * 100% = 20%.

Therefore, Y increases by 20%.

Suppose the Economy's Production Function Is Y = AK0

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