What share of output will be paid to labor

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Reference no: EM132154370

Question: An economy's production function is known to be a Cobb-Douglas production function with alpha = 0.30 and A = 10. Assume that there are constant returns to scale.

a. What share of output (percentage) will be paid to labor? To capital?

b. If the amount of labor is 40,000 and the amount of capital is 80,000, calculate the amount of output produced in this economy, as well as the marginal product of capital and marginal product of labor.

c. Given the numbers provided in b., determine the total value of wages earned to workers and total amount of rent earned to capital owners in this economy.

d. If the amount of labor in b. doubles (holding capital constant), determine the new levels of output, marginal product of labor, marginal product of capital, total wages earned and total rent earned.

e. Explain what happens to MPL and MPK after the amount of labor doubles in part d.

f. Use your estimates of wages and rent in parts b and d to calculate the share of output earned by workers and capital, respectively before and after labor doubles (show your work!). Does the share of output paid to labor or capital change after labor doubles? Why or why not?

Reference no: EM132154370

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