Production function have constant returns to scale

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Reference no: EM131007083

Country A and Country B both have the production function:

Y = F(K,L) = K^(1/3)L^(2/3).

a) Does this production function have constant returns to scale? Explain.

b) What is the per-worker production function, y = f(k)

c) Assume that neither country experiences population growth or technological progress and that 20-percent of capital depreciates each year. Assume further that country A saves 10% of output each year and country B saves 30% of output each year. Using your answer from part (b) and the steady-state condition that investment equals depreciation, find the steady-state level of capital per worker for each country. Then find the stead-state levels of income per worker and consumption per worker.

d) Suppose that both countries start off with a capital stock per worker of 1. What are the levels of income per worker and consumption per worker?

Reference no: EM131007083

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