In the following production function,Y = f(K,NA),suppose A increases by 20%.This 20% increase in A implies that
A)the same output can be produced with 20% less labor.
B)the effective quantity of labor has increased by 20%.
C)output will increase by less than 20%.
D)all of the above
E) both A and C.

Question

Quizplus · Accepted Answer

An increase in A, which can be interpreted as an improvement in technology or an increase in the effectiveness of labor, means that labor becomes more productive. This implies that the same output can be produced with less labor (A), effectively increasing the quantity of labor (B), and depending on the returns to scale, the output might increase by less or more than 20%, but without specific information on returns to scale, we cannot determine the exact increase in output, making (C) a possibility as well. Therefore, all of the statements are implied by a 20% increase in A.

In the Following Production Function,Y = F(K,NA),suppose a Increases by 20%.This