The production function is Y= 2K^0.5•N^0.5. Where the real wage (w) is 4, what is the...
The production function is Y= 2K^0.5•N^0.5. Where the
real wage (w) is 4,
what is the capital per worker (k) in the economy?
Homework Answers
Marginal product of labor = Wage
Marginal product of labor , MPN = (2)(0.5) K0.5 N-0.5
= K0.5 N-0.5
= K0.5 / N0.5 = k0.5 (because K/N =k represents capital per worker)
At optimal MPN = w
k0.5 = 4 (because w=4 (given) )
k = (4)2
k = 16
Hence, capital per worker (k) in the economy is 16 units.
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