Question

An economy has a Cobb Douglas production function, given by: a, (1-a) (1) YAK L Where Yis equal to total production, K is equal to the capital input of production and L is equal to the labour input of production. The constant, A, represents technology in the economy and a the elasticity of capital. function exhibits, decreasing, increasing or constant returns to scale. [ 10 Marks A2. Carefully derive the marginal product of labour and explain how this might be used in the firms decision making process 10 Marks

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In Cobb Douglas Production function, sum of the exponents of capital and labor determines returns to scale of the production function. Also, the marginal product of labor is given by taking the derivative of the production function with respect to labor. This can be depicted as follows:

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