What are the returns to scale of the production function

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Suppose that the economy is characterized by this Cobb-Douglas production function: Y = 60K1/3L2/3

a) What are the returns to scale of the production function? Show it.

b) If firms in the economy decide to hire 8,000 workers and 64,000 units of capital, what is the total product in the economy, what is the equilibrium real wage and the equilibrium real price of capital?

c) If firms in this economy decide to increase the number of hired workers to 12,000 workers and keep the number of units of capital equal to 64,000, what happens to the equilibrium wage and what happens with the share of wages in total income? Explain.

Reference no: EM132476567

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