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Suppose that an economy's production function is Cobb-Douglas with parameter alpha = 0.3. Suppose...

Question:

Suppose that an economy's production function is Cobb-Douglas with parameter {eq}\alpha = 0.3 {/eq}.

Suppose that a gift of capital from abroad raises the capital stock by 10 percent. What happens to total output (in percent)?

Aggregate Output:

The term aggregate output can be defined as the total production of output by a firm at each price level. Usually, the aggregate output level of the firm must rise as the price level rises, and vice versa.

Answer and Explanation: 1

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Here,

{eq}Y = F(K,L) =AK^{\alpha }L^{1-\alpha} {/eq}

According to the given information;

{eq}Y1 = AK^{0.3 }L^{0.7}\\ And\\ Y2 =A(1.1K^{0.3...

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Production Function in Economics: Definition, Formula & Example

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Chapter 11 / Lesson 27
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Learn about the production function. Read the production function definition in economics, learn the production function formula. Plus, see graphs and examples.


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