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 .
-Imagine that for this economy TFP=10 hours = 400,and land =210.If the rate of depreciation is 5% and investment is 20% of output,what is the steady state level of output?
A) 500
B) 1000
C) 3000
D) 7000
E) 15000

Question

Quizplus · Accepted Answer

To find the steady state level of output, we need to use the equation:

Investment = Depreciation x Capital

We know that Depreciation is 5% and Investment is 20% of output, so:

0.2Y = 0.05 x 60K

Solving for K, we get:

K = 240

Now that we know the steady state level of capital (240), we can use the production function to find the steady state level of output:

Y = 10 x (400)^0.3 x (240)^0.3 x (210)^0.2

Simplifying this expression, we get:

Y = 3000

Therefore, the steady state level of output is 3000.

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