The next questions refer to the following.
Suppose the economy has TFP = 10, there are 400 hours worked, and 60 unit of capital and 210 units of land the Cobb-Douglas production function is:
Output = TFP x Hours 0.3 x Capital 0.3 x Land 0.2 .
-If total factor productivity grows by 1% per year while capital and labor each grow by 2% per year,then output grows by
A) 2.2% per year
B) 3% per year
C) 5% per year
D) 1.67% per year
E) 4% per year

Question

Quizplus · Accepted Answer

The correct answer is A because the output growth rate is equal to the weighted average of the growth rates of the inputs, where the weights are the exponents of the inputs in the production function. In this case, the growth rate of output is equal to 0.01 + 0.02 + 0.02 = 0.05, or 5% per year.

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