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29 August, 04:59

Suppose the economy's production function is? = ? K 0.3? 0.7. If K = 2000, N = 100, and A = 1, then Y = 246. If K and N both rise by 20%, and A is unchanged, by how much does Y increase?

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  1. 29 August, 06:10
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    Y=38.8

    Y will increase by 38.8

    Y=246+38.8

    Y=284.8

    Explanation:

    Y=A. F (K, L)

    Y=A. K^0.3, L^0.7

    Then

    Y=246

    A=1

    K=2000

    N or L=100

    Solutions

    200=1 (2000^0.3, 100^0.7)

    Now the question says both k & N are increased by 0.20

    Therefore

    Y=1 (2400^0.3, 120^0.7)

    Y=1 (10.3 + 28.5)

    Y=38.8
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