1. (9 pts). Consider the following production functions for two countries Countr
ID: 1137325 • Letter: 1
Question
1. (9 pts). Consider the following production functions for two countries Country A and Country a Assume that output is the same in both countries, L.e., YA-Y100. The capital input and the labor inputs are K- 100 and La-25 and Kp 100 and Le 400 in country A and country B, respectively. Calculate the following Per capita income in both countries (it's the same as the output per worker, if we assume that everybody is working in those countries)- (a) LA »- Compare the two numbers above. Which country has higher living standards? (b) Total factor productivity, A, in both countries-Explanation / Answer
1) yA = YA/ LA = 100/25= 4
yB = YB /LB = 100/400= 0.25
country A has higher living standad because it has more output per labour.
2) AA = 100/ (100)0.5(25)0.5 = 100/50= 2
AB = 100/ (100)0.5(400)0.5 = 100/200= 0.5
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