It shall be noted that according to the neoclassical theory of distribution, the real wage equals the marginal product of labor. Because of diminishing returns to labor, an increase in the labor force causes the marginal product of labor to fall. Hence, the real wage falls.
Given a Cobb–Douglas production function, the decrease in the capital stock will decrease the marginal product of labor and will decrease the real wage. With less capital, each worker becomes less productive
As per the neoclassical theory of distribution, in an economy that is described b a Cobb-Douglas production function, workers would experience a higher rate of real wage growth when the average productivity of the labor is growing rapidly.
That means the rapid growth of the marginal labor productivity would lead to a higher rate of real wage growth of the workers.
Hence, the correct answer is a. marginal labor productivity is growing rapidly
According to the neoclassical theory of distribution, in an economy described by a Cobb Douglas production...
Q. 1 Consider an economy with the following Cobb-Douglas production func- tion: Y = 5K The economy has 27,000 units of capital and a labour force of 1,000 workers. a. Derive the equation describing labour demand in this economy as a function of the real wage and the capital stock. b. If the real wage can adjust to equilibrate labour supply and labour de- mand, what is the real wage? In this equilibrium, what are employment, output, and the total...
Consider an economy described by the Cobb-Douglas production function: Y = A, KAH 1/3 H1/12 1/12 1/2 If the capital stock and real GDP each grows at 3 percent per year, while labor hours grow at 1 percent per year, and the quantity of human capital and natural capital are both constant, what is the average annual growth rate of efficiency (or total factor productivity)? 1.5 percent per year 2 percent per year 0-1 percent per year O percent per...
2. Consider a Solow growth model with Cobb-Douglas production function Y Ko (AN)-a with constant savings rate s, depreciation rate d and no growth in productivity or labor (gA = gN = 0) (a) Suppose A = 1, a = 1/3, s = 0.2 and 5 = 0.1 (annual). Calculate the steady state capital per worker and steady state output per worker (b) Suppose that the real wage w and real return to capital r are equal to the marginal...
If national production is given by a Cobb-Douglas production function with constant returns to scale, real GDP is growing at 4%, the capital to labor ratio is constant, and the labor force is growing at 1.5%, what is the growth rate of the Solow residual? Assume α = 0.3. a) 1.5% b) 2.5% c) 5.5% d) 7.0% e) None of the above Please provide the solving process for this problem.
Work It Out. Consider an economy with the following Cobb-Douglas production function: Y= 5K/3L2/3 where L the wag the sect are will a. If w wh a. Derive the equation describing labor demand in this economy as a function of the real wage and the capital stock. (Hint: Review Chapter 3.) b. The economy has 27,000 units of capital and a labor force of 1,000 workers. Assuming that factor prices adjust to equilibrate supply and demand, calculate the real wage,...
Assume the following Cobb-Douglas production function: Assume the following Cobb-Douglas production function: Y = AK 0.4 20.6 If Y=12; K=8; and L=95, answer the following questions (SHOW ALL YOUR WORK): - 1. What is total factor productivity? 2. With your answer in (1), assume L=95 and estimate the production function with respect to K 3. Estimate the marginal product of capital and demonstrate diminishing marginal product of capital 4. Estimate real capital income 5. Estimate the share of capital income...
An economy has a Cobb-Douglas production function: Y = K"(LE)!-a The economy has a capital share of 0.25, a saving rate of 40 percent, a depreciation rate of 3.00 percent, a rate of population growth of 0.75 percent, and a rate of labor- augmenting technological change of 2.0 percent. It is in steady state. b. Solve for capital per effective worker (k*), output per effective worker (y*), and the marginal product of capital.
An economy has a Cobb-Douglas production function: Y = K°(LE)1-a The economy has a capital share of 0.25, a saving rate of 43 percent, a depreciation rate of 3.00 percent, a rate of population growth of 4.25 percent, and a rate of labor-augmenting technological change of 3.5 percent. It is in steady state. b. Solve for capital per effective worker (k*), output per effective worker (y*), and the marginal product of capital. k* = 2.83 y* * = 1.30 =...
Athens is an agricultural economy with the following Cobb-Douglas production function that uses land (x) and labor (L) as factor inputs to produce grain (V) as the real output. Y = 2x0.5 70.5 = 2/XVI Land stock is 25 units. Labor supply is 16 workers. Find real output per worker.
In a Cobb Douglas production function the marginal product of labor will increase if: a. the quantity of labor increases. b. the quantity of capital increases. c. capital's share of output increases. d. average labor productivity decreases.