Given that all countries have the same Cobb-Douglas production function,i.e.Y/N = (K/N)b,a ten-fold difference in per capita income requires a difference in capital per capita by a factor of
A)10.
B)10b.
C)101/b.
D)b.

Question

Quizplus · Accepted Answer

The Cobb-Douglas production function in per capita terms is Y/N = (K/N)^b. To achieve a ten-fold difference in per capita income (Y/N), the capital per capita (K/N) must be raised to a power that results in 10. Since (K/N)^b = 10, taking both sides to the power of 1/b gives (K/N) = 10^(1/b), indicating that capital per capita must differ by a factor of 10^(1/b).

Given That All Countries Have the Same Cobb-Douglas Production Function,i