Suppose that the production function for the economy
is:
Y = AK1>2L1>2.
Assume that real GDP is $12,000 billion, the capital
stock is $40,000 billion, and the labor supply is 150
million (or 0.150 billion) workers.
a. Calculate the value of the marginal product
of capital. Given this value, if the capital
stock increases by $1 billion, by how much will
real GDP increase?
b. Calculate the value for the marginal product of
labor. Given this value, if the labor supply increases
by one worker, by how much will real GDP
increase?
c. What fraction of total income is received by labor,
and what fraction is received by capital?