The countries of Aloha and Biki both have the production function Y = K^{1/3} L^{2/3} (a) Does...


The countries of Aloha and Biki both have the production function

{eq}Y = K^{1/3}L^{2/3} {/eq}

(a) Does this production function have constant returns to scale? Show why or why not.

(b) Derive the per-worker production function (i.e. y = f(k))

(c) Draw a Solow diagram for Aloha and show their steady state. Now, suppose that the depreciation rate of capital, {eq}\delta {/eq} increases due to inadequate maintenance of their roads. Show the new steady state.

(d) Suppose that the country of Aloha has a higher savings rate than Bikini. Draw a Solow diagram and show the steady state of both countries on the same diagram. Which country will be richer in terms of income per capita?


The term production in economics can be defined as a process by which the raw materials and other valuable inputs are utilized to manufacture a final product for the market by using production factors like labor, capital and entrepreneurship.

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No, the given function is not a constant return to scale rather it is a Cobb Douglas production function. This is so because an increase in the...

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