Question

1. An economy has a labor endowment of 24 units. Good x has the production function x = 10L_x and good y has the production function y = 2(L_y)^0.5, where L_x and L_y are the labor units allocated to sector x and y, respectively. Find output x if a third of labor endowment goes to producing good x.

1. 65
2. 70
3. 72
4. 80

Answer 1

Answer

The correct answer is (d) 80.

Production function of x is given by :

x = 10L_x

where L_x = Labor units allocated to sector x

Here it is given that a third of labor endowment goes to producing good x and also it is given that Labor endowment = 24. Thus amount of labor goes to production of x = a third of 24 = 24/3 = 8

Hence L_x = 8

=> x = 10L_x = 10*8 = 80.

Thus,  output x if a third of labor endowment goes to producing good x = 80

Hence, the correct answer is (d) 80.