Suppose that industries within a country are perfectly competitive and exhibit constant returns to scale. The...
Suppose that industries within a country are perfectly competitive and exhibit constant returns to scale. The labor-share of income is 60% and the capital to labor ratio is K/L = 4. How large must the real rental rate of capital be if real wages are $2?
Homework Answers
the production function 
MPL=
MPK=
Cost is minimized MPL/MPK=w/r
So, K/L=(
)*(w/r)
4=(40/60)*(2/r)
r=$0.33
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Suppose that industries within a country are perfectly
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