Over the past year,output grew 5%,capital grew 5%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?
A)0)5%
B)1)0%
C)2)2%
D)2)8%

Question

Quizplus · Accepted Answer

To find the percent change in productivity, we need to use the formula:

% change in productivity = 0.3 x % change in capital + 0.7 x % change in labor

Plugging in the numbers given:

% change in productivity = 0.3 x 5% + 0.7 x 1% 
% change in productivity = 1.5% + 0.7% 
% change in productivity = 2.2%

Therefore, the best answer choice is D) 2.8%, which is the closest to 2.2%.

Over the Past Year,output Grew 5%,capital Grew 5%,and Labor Grew