QUESTION 8 Suppose the production function is given by Y- K1/43/4 and there are

Question

QUESTION 8 Suppose the production function is given by Y- K1/43/4 and there are 10,000 workers and 16 machines available In the long run the output produced will be 1,500 and the overall income created in the economy will be 2.000 the real wage rate will beand the overall income created in the economy will be 2.000 the output produced will be 2,000 and the overall income created in the economy will be 1,500 125 4 the real wage rate will beand the real income eamed by all the workers combined will be 1,500 20

Explanation / Answer

If we put K = 16 and L = 10,000

then

Y = (16)1/4(10000)3/4

Y = 2000

Now one thing is sure that output is 2000

Now consider the exponent of the inputs present in the production function. If you add these exponents you will get -

1/4 + 3/4 = 4/4 =1

This implies that the exponent suggests how much of each input contributes to the output /production.

Hence it also respresents the real income that would be earned by the owner of this factor of production that is real wage of labors as the same proportion is contributed by the labor and henec will be paid equally in real worth.

Thus the real wage of labors = ( total output )3/4 = 20003/4 = 1500

Hence the real income of workers is 1500

now find the correct answer from option. You will get that third option is correct.

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