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    Cobb Douglas B

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    Sunita Patil
    This document provides an economics problem set that demonstrates various properties of the Cobb-Douglas production function using an example with capital (K) and labor (L) as inputs. It asks students to: 1) Show that the function exhibits constant returns to scale by calculating output (Y) at different proportional levels of K and L. 2) Show diminishing marginal productivity of labor by calculating incremental changes in Y from additions to L. 3) Show diminishing marginal productivity of capital by calculating incremental changes in Y from additions to K. 4) Demonstrate that the function satisfies Euler's theorem, which states that total revenue equals the sum of the products of each input and its marginal product.

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    Download as PDF, TXT or read online from Scribd

    Cobb Douglas B

    Uploaded by

    Sunita Patil
    102 views2 pages
    This document provides an economics problem set that demonstrates various properties of the Cobb-Douglas production function using an example with capital (K) and labor (L) as inputs. It asks students to: 1) Show that the function exhibits constant returns to scale by calculating output (Y) at different proportional levels of K and L. 2) Show diminishing marginal productivity of labor by calculating incremental changes in Y from additions to L. 3) Show diminishing marginal productivity of capital by calculating incremental changes in Y from additions to K. 4) Demonstrate that the function satisfies Euler's theorem, which states that total revenue equals the sum of the products of each input and its marginal product.

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    Cobb Douglas b

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    This document provides an economics problem set that demonstrates various properties of the Cobb-Douglas production function using an example with capital (K) and labor (L) as inputs. It asks students to: 1) Show that the function exhibits constant returns to scale by calculating output (Y) at different proportional levels of K and L. 2) Show diminishing marginal productivity of labor by calculating incremental changes in Y from additions to L. 3) Show diminishing marginal productivity of capital by calculating incremental changes in Y from additions to K. 4) Demonstrate that the function satisfies Euler's theorem, which states that total revenue equals the sum of the products of each input and its marginal product.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    102 views2 pages

    Cobb Douglas B

    Uploaded by

    Sunita Patil
    This document provides an economics problem set that demonstrates various properties of the Cobb-Douglas production function using an example with capital (K) and labor (L) as inputs. It asks students to: 1) Show that the function exhibits constant returns to scale by calculating output (Y) at different proportional levels of K and L. 2) Show diminishing marginal productivity of labor by calculating incremental changes in Y from additions to L. 3) Show diminishing marginal productivity of capital by calculating incremental changes in Y from additions to K. 4) Demonstrate that the function satisfies Euler's theorem, which states that total revenue equals the sum of the products of each input and its marginal product.

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    Econ 30233

    Intermediate Macroeconomics

    John Lovett

    Problem Set # 6 (For last 4 of IDs: 3334 6666) Characteristics of the Cobb-Douglas Production Function
    Overview: In this problem set you will demonstrate the many desirable characteristics of the Cobb-Douglas production function. The Cobb-Douglas production function, for a model of the economy with only Capital (K) and Labor (L) as inputs is:

    Y = KL(1-)

    Where 0 < < 1

    For this problem set, assume that = 0.6


    Instructions 1. Demonstrate that the Cobb-Douglas production function is a constant returns to scale (CRS) production function. Do this by: a. Calculating Y when K = 20 and L = 40 b. Calculating Y when K = 40 and L = 80 c. Calculating Y when K = 100 and L = 200 d. Explain what constant returns to scale is. Explain how your numbers demonstrate, or fail to demonstrate, that the Cobb-Douglas function is CRS. 2. Demonstrate that the Cobb-Douglas production function exhibits diminishing marginal productivity of labor. Do this by: a. Hold K constant at 10. Vary L, in increments of 1 from 1 to 8. Calculate Y for each L. Then calculate the added output per added unit of Labor, i.e. MPL. Fill in the chart below.

    K
    10 10 10 10 10 10 10 10 10

    L
    0 1 2 3 4 5 6 7 8
    1

    Y
    0

    MPL =
    NA

    Y L

    Econ 30233

    Intermediate Macroeconomics

    John Lovett

    b. Explain what diminishing marginal productivity of labor is. Explain how your numbers demonstrate, or fail to demonstrate, that the Cobb-Douglas function exhibits diminishing marginal productivity of labor. 3. Demonstrate that the Cobb-Douglas production function exhibits diminishing marginal productivity of Capital. Do this by: a. Hold L constant at 10. Vary K, in increments of 1 from 1 to 8. Calculate Y for each L. Then calculate the added output per added unit of Labor, ie. MPK. Fill in the chart below.

    L
    10 10 10 10 10 10 10 10 10

    K
    0 1 2 3 4 5 6 7 8

    Y
    0

    MPK =
    NA

    Y K

    b. Explain what diminishing marginal productivity of capital is. Explain how your numbers demonstrate, or fail to demonstrate, that the Cobb-Douglas function exhibits diminishing marginal productivity of capital. 4. Demonstrate that the Cobb-Douglas production function abides by Eulers theorem. Do this by: a. Explain what Eulers theorem is and how it applies to production function. In particular, list the conditions (CRS, etc.) required for Eulers theorem to hold. The state the outcome (Y = something) according to Eulers theorem. b. Let K = 100 and L = 100. Calculate Y. c. Calculate the Marginal product of labor (MPL). To do this calculate Y when K = 100 and L = 99. The added output when L increases to 100, calculated in part b, is the MPL. d. Calculate the Marginal product of capital (MPK). To do this calculate Y when K = 99 and L = 100. The added output when K increases to 100, calculated in part b, is the MPK. e. Calculate KMPK + LMPL. Use the MPL and MPK you calculated in c and d respectively. Use 100 for K, and 100 for L. Does this equal Y when K = 100 and L = 100?1
    1

    Note: your results may be off by a tiny bit because we calculated MPL and MPK based on discrete changes instead of using calculus.
    2

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