Suppose the production function in an economy is Y = K0.5L0.5, where K is the amount of capital and L is the amount of labor. The economy begins with 64 units of capital and 16 units of labor. Use a calculator and equations in the chapter to find a numerical answer to each of the following questions. If a sudden immigration quadruples the size of the population, while the capital stock is unchanged, what is the new level of output?
What is the new wage and rental price of capital?
What share of output does labor receive now?
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