Consider an economy whose production function is Y(t) = K(t)ª, K(t) = sY(t) — 8K (t) (Notice there is a dot above the K). Show that if there are increasing marginal returns, that is a>1, then there are two possible futures for the economy depending on whether the initial capital K(0) is greater or less than a threshold. Estimate the value of that threshold.
Consider an economy whose production function is Y(t) = K(t)ª, K(t) = sY(t) — 8K (t) (Notice there is a dot above the K). Show that if there are increasing marginal returns, that is a>1, then there are two possible futures for the economy depending on whether the initial capital K(0) is greater or less than a threshold. Estimate the value of that threshold.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter21: Costs And The Supply Of Goods
Section: Chapter Questions
Problem 13CQ
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