Question

An island country is a closed, no government, and no storage economy. There is a fixed amount of land in this island. The aggregate production function requires land and labor inputs as following:

Y = zF(L, N),

where Y is the total output, z is the total factor productivity, L denotes total size of land, and N denotes labor size for thecurrent period. F (L, N) is a diminishing return to scale production function. Let C denote aggregate consumption and N^’denote the labor size. Assuming the population growth rate N'/N depend on living standards C/N as the following: N'/N = g(C/N), where g is an increasing and concave function. Suppose households prefer having less kids than before. i.e. birth rate is lower everything fixed. Analyze the short-run and long-run effect on output, consumption, output per worker, consumption per worker, and population. (20 marks)

Answer 1

goods. Suchery of sole . ay important that are included in production of Labor also contribute produebon proces generate profit inputs play important br Additional ought can be generate with help of labour and land. The relationship between output and fixed level of other inputs change the production function. Change in output obtained by changing land and tabor. Aggregate production function respond to rassations in inputs more output is produced with gires bonited inputs. laber product isty is the value that each labor creates ger unit of his input. Being more productive means you can help to do more in the same amount of time. Economies of scale are the Cost advantages that industries obtain due to size,

produce e, working longer hours output With more inputs we can produce more More labor work force, Working longer hours more real GDP. Extra output with the help of input contribute total production forms and produchon units use the produchon function to determine how much output they should produce and what combination of inputs they should use to produce giren the price et capital and labor. production Princhon also gives information about increasing or decreasing returns to scale and the marginal products of labor. Production function relates physical output of production process to physical inputs. If a firm has production function and L is the amount of labor used in production from Can produce one unit of output for every wait of labor ist employs - Industry has a constant returns to scale so amount of Output Dill moreast proportionally with increase in amount of inputs.' Land is natural resource which is used to produce goods and Services and is limited factor. It includes any natural resources the land produces such as Gude oil, Coal water, gold or gas. Resources are natural materials

Date- 18/03/2020 Economics 8.1 An island country is a closed, no government, and no storage economy. There is toxed amount of land in this island. The aggregate production function requires (and and labor inputs as following ! Y= f(L,N). Where is the total suspet I is the total factor productivity, Idenotes total size of land and N. denotes Labor size for the current period f(L,H) is a diminishing return to scale produchon function, Let c denotes aggregate consumption and N denotes the labor size Assoming the population growth rate H D depends on living standard c/w is the following: N/H = g(c) where & is as increasing and Concare function suppose households prefer having less kids than before, i.e. birth rate is lower everything fixed. Analyse the short sun and long sun effect on output, Consumption output per worker consumption per' Worteer and population Answer Aggregate production function definds how aq qregate output in an economy depends on inputs like labor, homas Capital and resources output increases when there is increase in inputs. labor who are worked for the total number of hours. Labor which is comportant factor, size of Workforce Hours at Work that go into the production function.