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    Analytical question about capital, labor, TFP, Cobb Douglas

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    Subject: Analytical question about capital, labor, and TFP, using Cobb Douglas function

    Details: 4. Output in an economy is produced when labor hours (H) are combined with capital (K) in a way which reflects TFP to produce output (y). The relation is: y=TFP.K0.^0.27 * H^1-.0.27 What is the share of labor income in output? What happens to the share of profits (i.e. capital's share in output) when there is a change in TFP? (comment on your answer.)

    5. Use the production function of Question 4

    a) what happens to the marginal product of labor if H rises by 10% with no change in other inputs?
    b) What happens to the marginal product of capital if K increases by 15% with no change in other inputs?
    c) What happens to the marginal product of labor and to output per person employed if labor and capital both rise by 7%?

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    Solution Summary

    The expert examines analytical questions about capital, labor and TFP using the Cobb Douglas.

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