Production Function
Real GDP = T (L,K),such that Real GDP = T(L + K)
Assume that the technology coefficient is equal to 0.40.
-Refer to Exhibit 17-1.If this production function is graphed with Real GDP on the vertical axis and labor on the horizontal axis,and labor rises from 6 units to 7 units it would cause a
A) shift upward in the production function to a higher level of Real GDP.
B) shift downward in the production function to a lower level of Real GDP.
C) movement down along the same production function to a lower level of Real GDP.
D) movement up along the same production function to a higher level of Real GDP.

Question

Quizplus · Accepted Answer

According to the given production function, Real GDP is a function of labor and capital. If labor rises from 6 units to 7 units, it means that only one factor of production (labor) has changed while the other (capital) has held constant. Therefore, this will lead to a movement up along the same production function to a higher level of real GDP. This is because the technology coefficient is less than 1, which means that each additional unit of labor will contribute less than one unit of output, but it will still contribute positively to output.

Production Function Real GDP = T (L,K),such That Real GDP = T(L